Have you visited your doctor for your annual physical? Do you visit your dentist every six months? To stay healthy, you must monitor your health and be aware of any changes. Your financial health is as important as your physical health and needs to be monitored in the same way. Although you see your licensed tax professional each year, you may need to have another meeting or checkup during the off-season. Your tax professional can keep you on the right track, but only if he or she has the information to know what is going on. Many times, there is little that can be done after December 31 to fix an unpleasant tax situation that is due to something that occurred earlier in the year. Here are some examples of situations that warrant an off-season visit or communication with your tax professional.
A change in marital status, such as marriage, remarriage, divorce, or separation can also result in a change in tax status. You may need to adjust the tax being withheld from your paycheck (or revise your quarterly estimated payments) to prevent an unexpected tax bill. If you are going through a divorce, it is extremely helpful to involve your tax professional in the discussion of the ramifications of dependents, alimony, child care, or the division of property before you sign anything. Divorce decrees often contain wording that result in a different tax treatment than what was intended. Call on your tax professional for a review.
A change in family size with the birth or adoption of a child can affect your tax return. You may also lose certain child-related credits as your children get older (or if your income increases). A child graduating (or taking time away from) college may also have a significant effect on your return.
Work-related changes may affect your tax situation. If you have pension opportunities that you are not sure about or excludable benefits such as cafeteria plans and dependent care benefits to choose from, your tax professional can help you evaluate your options. If you have an increase in salary, receive a bonus, or exercise stock options you may find yourself in a higher tax bracket or possibly subject to some of the newer tax surcharges that have been introduced for 2013. Changes in income may also affect your ability to claim work-related deductions.
If you find yourself in financial trouble, you may find yourself considering bankruptcy or a short sale of your house. If so, there are tax implications you should be aware of and options that may be available, so contact your tax professional. Time is of the essence if you are in a bankruptcy situation.
Did you accept an early retirement proposal from your employer or are you considering an early retirement? This event definitely changes your life and your tax situation! It’s better to discuss the options before you act rather than face a large tax bill because you did not understand the tax implications of your decision. Check with your tax professional to make sure you will not be triggering an early withdrawal penalty or causing some of your social security benefits to be taxed.
If you receive a letter from the IRS or your state tax department, call your tax professional! Do not ignore it or toss it in a drawer in the hopes that the problem will disappear. Putting off action tends to make any situation more complicated to resolve and, if you owe money, make you liable for larger penalties.
These are only some examples of circumstances that may warrant a call to your tax professional. If something has changed in your life, your job, or your finances, let your preparer know in advance so you can approach next year’s tax return reassured that there should be no surprises. The key word is communication: keep your tax professional informed of any changes in your life, because they may change your tax situation.