Changes in tax laws can cause clients to take unusual steps in tax planning, and that in turn can lead to confusion when making sure that paperwork is ready for the tax preparer next filing season. Advisors can help clients start getting ready now.
“Even though tax forms may not be released and e-filing transmission may not have begun, getting an early start is always better when it comes to providing your accountant your tax information,” said Daniel Geyer, New York-based partner in the tax services group at Crowe.
“Getting started in November/December of the prior year provides more time for the review of your situation for tax savings,” Geyer said. “There are also some strategies that may still be available after year-end, such as funding a retirement plan for a tax deduction.
“Late November and early December are great times to inform your accountant of any large transactions or milestones that occurred over the past year,” he added, “so that they can potentially provide planning advice before year-end ... or make notes for when they prepare your tax filings.”
Checking in early is especially key for 2021 given various pandemic-relief measures and many other tax changes.
“If you received checks for the Advanced Child Tax Credit in spite of being in a higher tax bracket ... you might [think you] owe that back to the IRS,” said Manasa Nadig, an enrolled agent and owner at MN Tax and Business Services and a partner at Harris Nadig in Canton, Mich.
If paying estimated taxes throughout 2021 for large interest, dividends or capital gains payouts or business income, “the end of the year is a good time to talk to your tax preparer to calculate a projection and make sure you’ve tweaked your estimated taxes if need be,” Nadig said.
“Those with investments, please send in brokerage statements as soon as they are received by February 15. One can follow up with updated brokerage statements if they come in later,” Nadig said.
Start printing the charitable donation letters and real estate tax bills to cut the delay when the 1099s and W-2s get released, Geyer said. “Telling your accountant before you enter a transaction will allow provide an opportunity to raise any potential tax ramifications or tax savings. Our strategies are limited if we are told after,” he said. “It’s always a good idea, no matter how big or small, to let your accountant know. Also let your accountant know of any changes to your living situation—such as moving to a new state, as there could be large consequences for your tax filings.