There is no denying the fact that hiring a professional and competent CPA for tax preparation and filing can ease your life, but there is a little responsibility that lies on your shoulder as well.
If you want to manage your financial situation strategically and ensure that you are paying no more taxes than your fair share, add a brief conversation with your CPA to your yearend to-do-list.
Here is a quick list of questions to ask your CPA before the beginning of the New Year:
Accelerating or Deferring Income
This is probably the most important question you should ask your CPA before the year ends. Tax advisors or CPAs keep track of the changing regulations of IRS and they can suggest you the strategy through which you can reduce the annual tax liability. You know your expenses and income and can project your tax brackets for the next year. If you think you will be paying higher tax next year, you should accelerate your income before yearend. For example, if you are a self-employed person, ask your partners or shareholders to pay before the end of the year. On the other hand, if you are expecting a lower tax bracket next year, it is wiser to defer your income and year-end bonuses.
Tax advisors not only help in estimating your tax liability before the year-end but also help you figure the ways through which you can reduce your annual tax liability.
Tax Position and Investments
Ask your CPA about your tax position and then decide about your annual bonuses, gains and losses. You can make the most of your low tax bracket by selling all your profitable investments. This will allow you to reduce tax payments on the profit from these investments. According to an estimate, if your tax bracket is lower than 15%, you can enjoy a 0% tax rate on your long-term gains. At the same time, you should ask your CPA about annual losses in order to reduce the tax rate on capital gains.
Ask your CPA about the charitable contributions you make according to your tax position. If you are expecting a lower income next year, make as many music charitable contributions as you can to lower the tax bracket. On the other hand, if this year has not been profitable for you, you can postpone your year-end charitable contributions to January.
If you are expecting increases expenses next year, ask your CPA the ways through which you can maintain a balance between your income and expenses. For example, if you anticipate health-related expenses, your CPA might advise you to increase the funds in your flexible spending account, thus allowing you to avail pretax money for increased medical expenses.
In case you are expecting a reduced tax burden next year, your CPA might advise you to accelerate your deductions on your income tax return.
No matter how trustworthy or experienced your CPA is, he will need your assistance and cooperation to manage your accounts and taxes. No one can keep track of your expenses and savings better than you and with the right approach you can save money on tax liabilities.