Five Questions to Ask Your CPA Before the End of the Year

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The following article was published by the MSCPA.

Are You on Track with Your Financial Plan?

Your to-do list is probably pretty full at this time of year. While the thought of adding one more task may feel overwhelming, it’s one that can help put your mind at ease this New Year’s Eve: Talk to your CPA.

“These last few months of the year are the perfect time to get your financial house in order. Sitting down with your CPA earlier, rather than later, gives you the time you need to make any changes to your tax or investment strategy,” says Theodore Flynn, CAE, president and CEO of the Massachusetts Society of CPAs. “Your goal is to make sure your personal financial plan is on track.”

Five Key Questions

You’ve scheduled your appointment with you CPA. Now what? Here are five key questions to ask:

1. What should I do now to make filing my taxes in the spring easier? Spend a little time organizing now and you’ll avoid anxiety when spring rolls around. You can also save time and money by submitting organized information to your CPA. As you receive tax documents in the mail, file them in a folder and set them aside until tax time. Most tax documents must be mailed by January 31, so you should have everything by the first week of February. If not, call and request a duplicate.

Next, go through your check book, credit card statements and cash payouts for the basic deductible items. This would include medical expenses including eye glasses, taxes paid, charitable donations (both cash and noncash), and any employer expenses that were not reimbursed. Don’t forget daycare expenses, student loan interest and tuition if applicable.

2. What can I do to lower my tax bill? Your CPA can help you look at your income to determine the best course of action to lower your tax bill. If you might be in a higher tax bracket next year, your CPA may recommend accelerating your income, including taking IRA distributions this year instead of next; selling stocks or other assets with taxable gains this year; or, if you’re self-employed, asking clients to pay before the end of the year. If you have recognized capital gains this year, look at “tax-loss harvesting” as a strategy to offset those gains. Note: if you sell investments to recognize a capital loss, you cannot repurchase that investment for 30 days (wash sale rule) for the loss to be allowed for income tax purposes.

On the other hand, if you think you might be in a lower tax bracket next year, talk to your CPA about deferring income by deferring year-end bonuses until January 2014, delaying the exercise of nonqualified stock options, and postponing receipt of distributions beyond the required minimum from IRAs. Also consider accelerating deductions such as prepaying your fourth quarter state income tax estimated payment and/or real estate taxes not due until 2014.

3. How will income tax changes affect me? New for the 2013 tax year is the 39.6% tax bracket for higher-income taxpayers. The 39.6% bracket affects the following taxpayers:

Filing Status                                                  Taxable Income

Married joint and surviving spouses             $450,000 or more

Head of household                                            $425,000 or more

Single                                                                  $400,000 or more

Married couples filing separately                   $225,000or more

For 2014, it is projected that these amounts will increase to $457,600, $432,200, $406,750 and $228,800, respectively.

When taxable income exceeds these levels, the 15% capital gains and qualified dividend preferential tax rate increase to 20% on that portion of taxable income attributable to net capital gains and qualified dividends that exceed these bracket amounts.

Higher-income taxpayers also must face two new Medicare taxes unveiled in 2013: the 3.8% surtax on net investment income and a 0.9 percent Medicare contributions tax on earned income. The net investment income tax is triggered when adjusted gross income exceeds: $250,000 (married joint filers and qualifying widowers), $200,000 (heads of household and single filers), and $125,000 (married single filers). The additional Medicare contributions tax is triggered when a taxpayer’s wages, compensation or self-employment income exceed these same threshold amounts. These amounts are not adjusted for inflation and remain the same for 2014.

4. Can I benefit from making a charitable donation? Charitable contributions made to qualified organizations may help lower your tax bill. Taxpayers can donate appreciated property instead of cash to a charity, which yields double the bang for your buck because an individual can deduct the property’s fair market value on the date he or she gives the gift and avoid paying capital gains tax on the appreciation. The deduction of appreciated property is generally limited to 30% of adjusted gross income.

5. Is my financial plan aligned with my short- and long-term financial goals? The end of the year is a good time to evaluate your overall personal financial plan. Life events such as the birth of a child or grandchild, marriage, divorce, death, retirement or inheritance all mean you should review and update your plan. Do you need to make changes to stay on track? Ask your CPA if your assets are properly allocated, if your spending plan is on track, and whether you should reassess your risk level based on to life changes and the current economic and investment environment.

A CPA can help you analyze your current situation and determine the best course of action for the coming year. If you have questions about your personal financial planning or need help finding someone to assist you,  please feel free to call us at 508-830-0007.

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About cozbycpa

Heather L. Cozby is a CPA on the South Shore and Cape Cod. The managing partner of Cozby & Company, LLC, Heather has the resources and experience necessary to provide quality professional services on a timely basis and at a reasonable cost. She specializes in tax planning & preparation; audit, review & compilation services; management advisory services; bookkeeping; and accounting. Her unique niche is in working with homeowners’ associations and condominium trusts, advising with rental real estate, and providing outsourced financial consulting for mid-sized companies. She is more entrepreneurial than most accountants, and offers the best of both worlds - providing the services of a larger firm while retaining the ability to connect with her clients on a personal level.
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