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Prepping Your Financial House for Income Tax Season

Prepping Your Financial House for Income Tax Season

October 11, 2018

It may only be October, but tax season is just around the corner. Time flies when you’re having fun (and even when you’re not!), but don’t let April 15 sneak up on you. Begin preparing now so the big day doesn’t loom before you and fill you with the dread that comes when you wait until the last minute to throw everything together. We’ve all done it, and it is not fun. Procrastination within your financial house only causes stress, and who needs more of that when it comes to taxes?

The thing about the last quarter of the year is that if you take the time in these next three months to get organized, your entire financial house benefits. It’s not just about taxes, either. Use this time to review all the financial aspects of your life to ensure you are on track to reach your goals and to map out any changes that should be made to improve your strategy.

There are a few things you can start doing now that can help you prepare. And if you start today, the task won’t seem so daunting. 

Know How the New Tax Law Affects You

Even though your CPA or financial advisor is (hopefully) on top of all of the recent changes that may affect your bottom line—you should have a grasp on the changes that pertain to you. The tax law changes are certain to impact on your financial house in one way or another. Familiarize yourself with the basics so you know what paperwork to include to send to your advisor.

For example, changes were made in areas including, but not limited to:

  • 529 savings plans
  • Estate planning
  • Mortgage and home equity loan interest deductions
  • Child tax credit
  • Charitable donations
  • High medical expenses
  • Standard deductions
  • Tax brackets
  • And more…

This article is an excellent resource to get a general idea of these and other changes that may apply to you, but certainly discuss your unique situation with your advisor. Don’t go rogue and try to decipher some of the complexities yourself. Your advisor is best equipped to explain these changes and to prepare your taxes accordingly, which is why you hired that person in the first place!

Review Your Investment Portfolio

It is important to review your investment portfolio before the year ends.  To avoid paying capital gain taxes, many investors sell off investments (such as stock) that have experienced losses. This is called Tax Loss Harvesting. The goal is to help offset any taxable gains realized during the year. 

If you have heavy capital gains this year, you should consult with your financial and tax professional to determine if Tax Loss Harvesting is a sound strategy for your portfolio. 

Make Sure Your Estate Plan Is Up to Date

This is a “must review” for every three years or whenever there are tax law changes. While some aspects of estates are set in stone, many are as fluid and subject to change with the times…and tax laws. Indeed, there were a significant change here that takes effect in 2018 that may benefit you. The death tax exemption was raised from $5.49 million to $11.2 million or ($22.2 million for married couples). This is fantastic news for those who have substantial estates. Our recent blog outlines additional changes and information in greater detail.

Other situational changes may affect the status of your estate plan such as a divorce or a jump in income. You want to make sure your executor is still up for the important task of ensuring your wishes are carried out once you’re gone. And, perhaps, your power of attorney designation should be changed if that person is no longer the one you trust with those decision-making powers. Our recent blog outlines additional changes and information in greater detail.

These are just three big areas of your financial house that you should review while you’re already having to deal with pulling your tax info together. With finances on your mind, it’s easier to see your entire big picture and to identify problem areas that need your attention.

Regardless of how large or small your financial house is, it is imperative to take stock on a regular basis. You don’t want to miss out on anything you could be doing better—and there are (almost) always areas that need improvement. You surely don’t want to continue down a path that prevents you from building and protecting the wealth you desire.

Consult with your CPA or advisor regarding other aspects of your financial house that need attention.