By CALLIE DANIELS BRYANT
Pencils down. Papers filed. Tense shoulders can now relax – we’re a month past the 2018 tax deadline, unless your tax return was smaller than hoped, or worse, you owe IRS. It’s never too early to plan ahead on how you can have a better tax season by 2019’s deadline, so we spoke to accountants and financial planners in Mississippi.
“I think the biggest ‘mistake’ people make is not having a tax adviser they trust walking them through the filing. The biggest risk is missed opportunities because they simply don’t know what questions to ask themselves to trigger important information for their tax return. An adviser knows the right questions to ask and where the opportunities lie,” said Marsha Diekman, CFA, the partner-in-charge at Horne, LLP, with her office based in Ridgeland.
Diekman said that keeping track of important documents throughout the year avoids missed information at deadline such as understating income or missed deductions.
“That’s why our firm offers an online organizer for our clients to organize and store their documents during the year. Plus there are automated retrieval capabilities for 1098s, 1099s, W-2s and more. Clients can snap pictures of documents and upload from their smartphone in the middle of transactions or when the info is fresh on their minds,’ she said.
Adding to the topic of common mistakes people can avoid for 2019 tax season, Ted Edwards, CPA for Haddox Reid Eubank Betts PLLC, said, “Tax laws are complex. Because of this, it is easy for those not trained and skilled in the area of tax preparation to make mistakes. Reporting more, or less, than the appropriate amount of income, gains, etc. is a common mistake, and likewise for deductible expenses. Probably at the top of the list is missing legitimate allowable deductions.”
Like Diekman, Edwards added that a simple way to make tax filing easier for 2019 is to accumulate all necessary tax filing documents in an organized manner and then provide them to their accountant as early as possible in the tax filing season.
With common sense advice in mind, there is more preparation yet to face the effects of new and changed tax legislations.
“There are many changes from the 2017 tax legislature that takes effect for the 2018 tax year,” Edwards said. “A few that will potentially result in a tax reduction for many taxpayers include lower tax rates and widening tax brackets, increased standard deduction (essentially twice as much as before), increased child tax credit that will be available to many more taxpayers, and the ability to use 529 plans to pay for K-12 tuition (previously limited to college expenses). Also, the new 20 percent deduction available to certain business ventures could prove to result in significant reductions in Federal income tax liability.”
He continues: “Awareness of changes made by the 2017 tax legislation that may not result in reduced taxes, such as the elimination of the deduction of personal exemptions, the repeal of the alimony deduction for divorce agreements entered into after December, 31, 2018, the $10,000 cap on the deduction for state and local real property taxes, personal property taxes and income or sales taxes, and the change to the mortgage interest deduction limiting the deduction to interest on acquisition indebtedness of $750,000 (previously one million) and the disallowance of the deduction for home equity indebtedness (that does not qualify as acquisition indebtedness).”
While there are a lot of changes to keep track of, there are just as many opportunities to net benefits.
Author, co-host of MPB’s “Money Talks” radio program, and investment advisor with New Perspectives, Inc., Ryder Taff (CFA, CPIM), said that across the board it looks like people will save about fifteen percent on their taxes for the next few years.
“It’s a perfect time to take advantage of a Roth IRA for extra savings,” Taff said.
As he explained in a blog on New Perspectives, Inc. website, (hyperlink: https://newper.blogspot.com/2018/02/) the taxpayers are temporarily in a lower tax bracket which would make it a good time to create a Roth IRA to contribute larger savings towards before being moved back to higher tax brackets for the same level of income.
Roth IRAs are tax free accounts where growth and even withdrawals in keeping with a few rules are tax free. They are ideal for investors who have time and a steady income to grow for their retirement accounts 30 years down the road.
Taff added, “A lot of people, particularly self-employed people are looking at different ways to incorporate in order to take advantage of the new law but that is a very complicated area. It may make sense to separate passive businesses from active businesses in order to qualify for the 20 percent deduction, but that is a matter for their CPA.”
Diekman also pointed out that while tax deductions may be lost, the brackets are expanded and rates are lowered. With all these opportunities she advises that it would be good to meet with an adviser sooner than later in order to maximize on results.
“Taxes are just one piece of your financial picture,” Diekman said. “A coordinated approach with a team helping you with your overall wealth plan is the best thing you can do as you look to 2019. Tax reform brought us opportunity and now is the time to explore the possibilities with the right folks in the room. There are current tax implications and long-term tax implications (wealth and estate planning) that should be vetted by an experienced team of tax and wealth advisors working together.”
There are many changes, some possibly temporary, to understanding and filing taxes, but the overall consensus is that yes, go ahead and start planning for next year even a month after the 2018 tax filing. Future may be uncertain, but preparation is always wise.
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