It’s hard to believe but half of 2017 has come and gone. Summer is in full force and vacation season is upon us. Although this might be the furthest thought from your mind, now is the perfect time to sit down and think about tax planning. Whether you are self employed or gearing up for retirement, the summer months are the perfect time to make sure you’re on track. This handy guide will help you think about your tax situation and whether or not you’ll need tax planning.
Did Your Marital Status Change?
If you were lucky enough to tie the knot in 2017, or expect to get married by the end of the year, then your tax situation will be vastly different from prior years. Since you will now have to combine your income on one return you will most likely be put in a higher tax bracket. With higher tax brackets comes reductions in certain deductions and exemptions, which can affect high income individuals more than someone with an average amount of taxable income.
For those who separated from their spouse in 2017: you will also see a drastic shift in your tax liability, especially if an alimony is involved. For people who are receiving alimony checks, they must be aware that these payments are taxable and have to be reported on their return. Since there is no withholding tax requirements for alimony, the spouse receiving such payments must manually submit tax payments during the year. On the other hand, spouses remitting payment of alimony will be able to deduct such payments from their taxable income.
Did You Purchase A Home?
Although the purchase of a home usually doesn’t have immediate implications on your tax liability, it will have indirect impacts through the deductibility of mortgage interest and real estate taxes. For most taxpayers, real estate taxes and mortgage interest, along with the deduction for state taxes, will be enough to exceed the standard deduction.
This means that you will have more deductions and pay less in taxes. Although this is true for most, not all tax payers are the same so home ownership deductions might not have the same impact for all taxpayers.
How’s Business?
If you are self employed your tax liability can vary greatly from year to year. If you are having an exceptional year then chances are you will pay more in taxes. If you are having an off year then your tax liability may decrease. Knowing your bottom line is crucial in order to pay the appropriate amount of tax throughout the year.
If your business is generating more income then you expected, then chances are you should sit down with a CPA to crunch some numbers. Making capital investments like purchasing large machinery can reduce tax liability through the use of section 179. Through the use of accelerated depreciation, business owners may write off up to $500,000 in eligible capital expenditures.
Did You Sell Any Stocks?
2017 has been an exceptional year for stocks with the Dow Jones sitting at over 21,000 and the S&P reaching all time highs . Cashing in on this bull market could have major tax implications to your 2017 return. Generally, taxes are not withheld for capital gain transactions so having a huge capital gain during the year could cause some surprises when it comes to tax time. Reviewing your brokerage statements with your CPA or financial adviser could make the difference between a huge tax bill and a refund.
Summary
Being proactive with your finances can have an incredible impact on your wealth. Not being aware of your potential tax liability during the year can cause headaches down the road; costing you hundreds, if not thousands in fines and underpayment penalties. To avoid an unwelcome tax surprise it is important to sit down with a trusted adviser and map out a plan that works best for you, your family, and your financial future.
0 comments on “Tax Planning Checklist”