Jun 01, 2019
Effective tax planning helps you make smart decisions now to get the future outcome you desire - but you need to make sure you do not miss anything. Forget to account for one of these situations and your tax plans will go off the rails in a hurry:
- Getting married or divorced. One plus one does not always equal two in the tax world. Marriage means a new tax status, new deduction amounts and income limits, and a potential marriage penalty. The same is true for divorce, but with added complexity. Untangling assets, alimony, child support and dependents are all considerations worthy of discussion.
- Growing your family. While bringing home a new child adds expenses to your budget, it also comes with some tax breaks. With a properly executed plan, you can take home the savings now to help offset some of those new costs. If you are adopting, you get an additional tax credit to help with the adoption expenses.
- Changing jobs or getting a raise. Earning more money is great, but if you are not careful, you might be surprised by the tax hit. Each additional dollar you earn gets taxed at your highest tax rate and might even bump you to the next tax bracket. If you are switching jobs, the change also includes things like new benefit packages to consider.
- Buying or selling a house. Whether you are a first-time homebuyer, you are moving to your next house, or you are selling a house, there will be tax implications resulting from the move. Knowing how your taxes will be affected ahead of time will help you make solid financial decisions and avoid surprises. If you are looking to buy or sell investment property, even more tax issues come into play. (See Paula Rogers’ article in this newsletter for more on this topic.)
- Saving or paying for college. There are so many different college tax breaks, it can be tricky to determine which ones might make the most sense for your situation. These include the American Opportunity Tax Credit, the Lifetime Learning Credit, the Coverdell Education Savings Account, 529 plans and student loan interest deductibility.
- Planning for retirement. Everyone needs to plan for retirement, but each situation is different. Some of the factors to keep in mind include employment status, current income, available cash, future earnings and tax rates, retirement age and Social Security. Putting all of these variables into one analysis will paint a clearer picture of your retirement strategy and provide a way forward.
Do not make the mistake of omitting key details from your tax plan. Call now to schedule a tax planning meeting. The relaxed days of summer are a perfect time to meet with your accountant. They can be reached in Cedar Rapids at 319-364-2945 or in Iowa City at 319-339-4884.