It’s tax season again, which means it’s time to stuff all those old receipts into a shoebox and head to your accountant for your annual financial checkup. Just as you would tell your doctor about any important health matters during a checkup, you should also tell your accountant about any important financial matters at this time of year. We don’t need to know all your secrets, but we do need to know about the big changes in your life.
1. Address Changes
At a minimum, we need to know if you’ve moved because we will need to update your address on your tax return. This is the address the IRS uses when they send out important notices. You don’t want that notice about your assets being seized going to the random guy that moved into your old apartment.
If your move involved buying or selling a house, the effect on your return could be much greater. There are deductions available to homeowners and there may also be capital gains/losses related to selling a home. Failing to report these can land you in hot water with the IRS.
2. Major Purchases (Vehicle, Boat, Airplane, etc.)
The IRS allows you to deduct either state and local income taxes or state and local sales taxes. People typically pay more in income taxes, which makes it more advantageous to deduct them. However, if you’ve made a major purchase, it’s possible that you paid more in sales taxes than income taxes. We will automatically calculate which tax is greater, but our results are only as good as our data. Forget to tell us about that $1 million catamaran you just bought and we won’t know to deduct those sales taxes. Of course if you're swinging that kind of dough around we have better ideas on how to save you money than just deducting sales taxes.
3. Marital Status Changes
You don’t have to invite us to the wedding, but you do need to tell us if you’ve gotten married. Similarly, we need to know if you’ve separated or divorced in the last year. This one key detail affects your entire tax return since the tax brackets and standard deductions are based on your marital status. There are also consequences to filing separately from your spouse that we need to take into consideration.
4. New Additions to the Family
Although we may not be the first people you send photos of your newborn baby to, we will need to know about your new bundle of joy before we file your tax return. Parents typically qualify for additional deductions and credits that can lessen their tax bill.
This rule also applies if you have another family member move in with you. It’s possible that they might be considered a dependent, which would net you an additional tax credit.
5. Filing for Bankruptcy
Most people understandably want to keep bankruptcies on the down-low. However, it’s vital that you tell your accountant if you’ve filed for bankruptcy. The tax code requires that most discharged debts be counted as income. So if you made $40,000 in income last year and had $10,000 in discharged credit card debt, your adjusted gross income would be $50,000. More income means more taxes, so your tax bill would be considerably larger. But any debts discharged through bankruptcy are NOT counted as income. This can save you a ton of money if you’ve had large amounts discharged. We'd also rather have you tell us than to find out some other way.
6. Failing to File Taxes in the Past
Maybe not so much a life event, but still pretty important. Every CPA has had at least one client who previously failed to file their taxes, whether it was just once or for multiple years. The bad news is that the IRS will eventually find you and take huge chunks of money from your paychecks or even put a tax lien on your assets. The good news is that we can prevent that if we know about it early on. Plus, we can negotiate with the IRS for you and often help reduce your total tax bill. The even better news is that you may be eligible for a refund for the years that weren’t filed. We can go back as far as three years to claim any refunds owed to you.
We know that people forget things sometimes, which is why we send out a comprehensive questionnaire to all of our income tax clients each year. It’s designed to catch these types of issues so that we can talk with you about your options and ensure that you’re getting the maximum refund you’re entitled to. The better we know our clients, the better we can help them achieve their financial goals.