Friday, May 17, 2013

Once is Not Enough: Why Contact a Tax Pro After April 15

Have you visited your doctor for your annual physical? Have you seen your dentist once or twice in the past year? Your financial health is as important as your physical health. To stay healthy, you must monitor your health and be aware of any changes. Your financial health needs to be monitored in the same way. Even though you see your licensed tax professional once a 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 knows what’s going on. Many times, there is little that can be done come tax time to fix an unpleasant tax situation that occurred earlier in the year. Here are some examples of situations that warrant an off-season visit or communication with your tax professional.

Events such as marriage, divorce or remarriage result in a change in marital status, but can also result in a change in tax status. The exemptions claimed on your W-4 may need to be adjusted to prevent an unexpected tax bill. If you are going through a divorce, discussing the ramifications of dependents, alimony, childcare or division of property before signing anything is extremely helpful. Divorce decrees often contain wording that has a different tax result 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. And, as children get older, you may lose certain credits.

A career change might 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. A career change might also increase income, shifting you into a higher tax bracket or changing the work-related deductions available, making a change in withholding a possibility.

If you find yourself in financial trouble, bankruptcy may be the option you choose. 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 your company present you with an early retirement proposal 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 didn't.  Know the tax implications of your decision: check with your tax professional to make sure you are not triggering an early withdrawal penalty or causing Social Security to be taxable.

While you probably use care in choosing a doctor, do you apply the same care in choosing a tax professional? The person doing your taxes should be registered with IRS, have passed testing on taxation, and be required to complete continuing education to keep up with the ever-changing tax code. Enrolled agents meet these criteria.

Last, but not least, if you receive a letter from the IRS, call your enrolled agent! Do not ignore it or toss it in a drawer hoping it will disappear. Putting off action only creates more letters and possibly, larger penalties.

The key word is communication: keep your tax professional informed of any changes in your life because they may change your tax situation.

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