Your Money, Your Independence If your taxes could talk, what would they say?Apr 29, 2021 03:50PM ● By Chuck Tashjian
Get your taxes done?
You have until May 17th to complete and find out what they say about you. Specifically, what are you doing well and can be done better?
If you don’t know, ask your accountant. If he/she can’t answer, maybe it’s time to get help with tax planning from a Certified Financial Planner (CFP).
A CFP’s goal with tax planning is to help clients take proactive steps to save money on their taxes now and help reduce liabilities in the future. Aspects include lowering your AGI (adjusted gross income), leveraging tax deductions, taking advantage of tax credits, tax deferrals and timing of large purchases, sales and realization of income.
Once you’re exhaled from completing your taxes, see if these apply for 2021:
Dedicate space to a home office. If you’re self-employed or started a side-gig, dedicate a section of your house as a home office. Schedule C deductions are many and prorated across several aspects of expenses, maintenance and utilities on your entire home. Additionally, if you build or renovate a home office, there are additional deductions if you’re self-employed.
Working From Home (WFH) becoming permanent. Is your company changing your role to WFH indefinitely, providing flexibility to move to another state? Understand workers are required to have taxes withheld in accordance with their state’s tax rules, regardless of where their employer is located. Also, some states make employers withhold taxes from nonresident employees’ wages.
Adjust your W-4. If you got a large refund, lower your withholding and do more with your money than letting the government sit on it. Additionally, if both spouses work and one is self-employed, consider raising your W-4 withholding to avoid potential penalties for underpaying estimated taxes on a growing small business.
Exercising Restricted Stock Units (RSUs). Did you sell some RSUs and get a large tax bill? Connect with HR to discuss withholding options before your next exercise. Also, learn of the benefits and drawbacks of converting to stock to qualify for long-term, instead of short-term, capital gains.
Revisit Work Benefits. You can impact your adjusted gross income (AGI) through 401k contributions as well as funding a HSA funding, FSA for dental/vision or FSA dependent care. Additionally, you may want to choose Roth instead of Traditional to eliminate future tax liabilities. If you can’t make some changes until open enrollment, don’t forget if you have a life event (new child, spouse loses or changes job) you have 30 days to revisit and reset your work benefits.
Tax planning is complex, but it doesn’t need to be complicated. Work with someone to help you save money, stay organized and reduce liabilities in the future.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Glenn Brown is a Holliston resident and owner of PlanDynamic, LLC, www.PlanDynamic.com. Glenn is a fee-only Certified Financial Planner™ helping motivated people take control of their planning and investing, so they can balance kids, aging parents and financial independence.