As the year winds down, families are busy with work, school activities, and holiday preparations. Taxes? Those can wait until April, right?
Not necessarily.
A promotion, a child growing older, college graduation, divorce, the loss of a spouse, or a new source of income can change your tax situation. Sometimes, even when your income stays the same, you could face a smaller refund or an unexpected tax bill.
When children grow up, tax credits change, too.
Did your child turn 17 this year? You may no longer qualify for the Child Tax Credit, although the $500 Credit for Other Dependents may be available. Childcare expenses also generally stop qualifying for the Child and Dependent Care Credit once a child turns 13, unless an exception applies.
For families with college students, the American Opportunity Tax Credit can provide up to $2,500 per eligible student, subject to certain limitations. When a child graduates or no longer qualifies, valuable tax credits may disappear.
And remember, having a part-time job doesn’t automatically mean your college student cannot be claimed as a dependent. Parents and students should coordinate before filing their returns.
Did your family or employment situation change?
Marriage, divorce, or the loss of a spouse can affect filing status, withholding, and eligibility for tax benefits.
A new job, salary increase, bonus, or second income can also change your tax liability. Even when taxes are withheld from every paycheck, the amount may not be sufficient.
New independent contractors and small business owners often discover that receiving Form 1099 instead of a W-2 means taxes aren’t automatically withheld. Income tax, self-employment tax, and estimated payments may now be their responsibility.
Stock options and other stock compensation can create additional tax surprises when shares vest, options are exercised, or stock is sold.
Sold a home or rental property?
Selling a primary residence may qualify for a capital gain exclusion of up to $250,000, or $500,000 for eligible married couples filing jointly. However, certain requirements apply, and some transactions must still be reported.
Selling rental property can be more complicated. In addition to capital gains, tax may be owed on gains attributable to depreciation previously claimed or allowable. Without proper planning, the tax bill can be substantial.
Already have an IRS payment arrangement?
If you’re paying an existing tax debt through an IRS Installment Agreement, a new unpaid liability can put that agreement at risk. Taxpayers with accepted Offers in Compromise generally must remain current with filing and payment obligations for five years after acceptance.
Don’t wait until April for an unpleasant surprise.
Before December 31, consider what changed in your life this year. A year-end tax projection can help identify potential liabilities, review withholding and estimated payments, and explore planning opportunities while there’s still time to act.
Life changes. Your tax planning should change with it.
At FisherTax, we help individuals and small business owners with tax preparation, year-round planning, and IRS and state tax matters.
FisherTax | 815-258-1411 | www.fisher-tax.com
Serving clients nationwide.
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