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Tax Season Takeaways

Tax season is always a challenging time for us as we have a significant amount of work to do in a very limited amount of time. This year felt like one of the more difficult filing deadlines we’ve had in recent memory. There were two big factors that contributed to this. 

The first was the impact of the Tax Reform bill passed at the end of 2017. Not only did that legislation change many aspects of tax law, it also introduced a number of new provisions that required new forms and completely revamped many existing forms. While we spent significant time educating ourselves throughout 2018 on the new rules, you don’t really find out how everything fits together until you start working through returns.

The second factor is the time we have to prepare returns, which continues to feel more compressed each year. We can’t begin working through returns until the tax documents have been issued and the new rules seemed to delay the timing of many documents, particularly K-1’s from partnerships. It was also quite common to see corrected versions of Form 1099’s due to restatements of income related to the new tax rules and that takes time and causes additional work for us.

In spite of these challenges we did manage to get all of our clients’ returns either filed or extended by the April 15th deadline. I had three major takeaways from this hectic tax season that I wanted to share.

Tax Planning is Critical 

You’ve probably seen the headlines about the decline in refunds this year. There were many unhappy taxpayers who were hoping tax reform meant they’d wind up with a bigger refund check. Unfortunately, while many of those taxpayers did in fact wind up with lower taxes, their withholding was also reduced last year. That means they wound up with more cash during the year, but they might not have received the refunds they were used to or expecting.

Proper tax planning can help you uncover such a discrepancy well before you actually file your tax returns. Using your pay stub to prepare a tax projection for the current year can help determine whether your withholdings need to be adjusted. If you are self-employed or a partner who receives a K-1, you should be able to come up with an estimate of your income on a quarterly basis, or you can use prior year income numbers. While it’s impossible to completely and accurately project your tax situation in advance due to unknowns like investment income, you can at least get a sense for where you stand. This also provides you the opportunity to do potential tax planning before the end of the year to minimize your tax liability.

Simple Doesn’t Mean Easy

The Tax Reform bill was supposed to simplify your taxes, but as we mentioned here many times over the past year, that wasn’t always the case. Yes, some taxpayers who don’t itemize deductions might have had things a little simpler this year, but most of our clients saw additional complexity. Even for those returns that wound up simpler in the end, since we didn’t know if they would itemize until we looked at all the numbers, it didn’t make it any easier to prepare! Once you factor in all the new rules that had to be considered, like the qualified business income deduction and state tax issues, many returns were more complex than ever. And don’t get me started on the “postcard size” forms that created 6 additional half page forms that also needed to be prepared for most people!

Procrastination is the Enemy

We understand it’s difficult to motivate yourself to put your tax information together, since it’s not exactly the most exciting task in the world! Unfortunately, as I outlined above, we are already under a tremendous time crunch during tax season. We try our best to help every client either prepare their returns on time or at least calculate an extension payment. However, when documents arrive very late in the process we are sometimes unable to spend as much time as we’d like with them. This can sometimes lead to a very rough calculation and any underpayment of taxes by April 15th is subject to interest and penalties.

The sooner we get your tax information from you, the more time we have to spend going through the numbers to make sure everything is entered correctly. We know some documents come out late, but if we have everything else early, we can just drop in those last few pieces when they are available. We encourage everyone to send us information as soon as it becomes available each year. 

You can even start this process now for 2019. If you haven’t already downloaded the TaxCaddy app and set up your account, do it now. Rather than waiting until next February to organize your charitable receipts, add them in TaxCaddy as you make them!  The same goes for your estimated tax payments, HSA contributions and anything else you might do during 2019 that could impact your returns when we prepare them next year.

Beyond Taxes

I’ll close with a reminder that our services extend well beyond tax season. We provide ongoing financial planning and investment management for many of our clients. This comprehensive financial advisory relationship allows us to get to know our clients very well and makes the tax preparation process much easier and more accurate. If you’d like to learn more about how we might be able to help you with your finances outside of the tax return preparation, please feel free to schedule a call or meeting with me anytime or send me an email at chris@lkbenson.com

-Chris Benson, CPA, PFS”

The views expressed represent the opinions of L.K. Benson & Company and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. Please see Additional Disclosures more information.