Tax season is upon us and most of the forms we need to file our income tax should have arrived or are available on line by now, and hopefully there’s a folder or envelope that we’ve kept throughout the year that contains the additional information we’ll need. Now the decision about how to file this year needs to be made. Some good questions to ask at this point are: what portions of the tax law have changed, how do changes in the law affect my tax situation or filing status, and how have things changed in my life this past year? In addition, what adjustments should be made in the coming year to better our situation when filing next year? Most of us would be hard-pressed to answer these questions.
Income tax laws change almost every year, and we shouldn’t assume that we have the latest information or that we know how it could apply to our tax situation. Federal and state income tax planning and filing are very complex, and we can overlook important details and considerations. Very often the best solution is to rely on a certified public accountant (CPA) who will have up-to-date knowledge about current and pending tax laws and how they apply to our circumstances. With a professional, we can also ask questions and find out how changes in our lives, income, or expenses might affect our tax situation in the coming years. This is an important part of personal finance planning. CPAs don’t just do our taxes, they provide expert tax-related financial advice and guidance, and they’re available for questions all year long.
If we do our own income tax forms by hand or use software products, we’re limited by what we know about tax laws and what we can determine from the software instructions. In addition, recent news about online filing fraud has made many filers nervous.
If you’re not completely familiar with the tax implications of any of the areas listed below, seriously consider finding and building a relationship with a local certified public accountant.
Typical Areas that Affect Income Tax
- standard deductions and personal exemptions
- alternative minimum tax (AMT)
- IRAs and 401(k) plans and qualified plan contributions
- estate and gift tax limits
- required minimum distributions (RMD)
- child tax credit
- charitable donations
- itemized deduction phase-outs
- sales tax deductions
- tax-exempt interest reporting
- health savings accounts
- education savings accounts