Your CPA Can Help You Avoid Paying Taxes—But Only if They Know What's Going On!
For many people, the process of putting together tax information for their accountant is a burdensome chore. The chore can be that much worse when you have a small business or rental properties, etc. You finally get it done and submitted, and you sit and await your fate: refund or balance due. Whew. With that behind you, you file your records away, and are happy you don’t have to deal with that for another year. You go about your life, dealing with your real life issues… should I sell this property? Buy this one? What do we do with mom’s home, now that she is entering assisted living?
More than the messenger of whether you owe additional taxes
Your CPA is your strategic partner in minimizing taxes due. We are your advocate. But we can’t help you after the fact, when you turn in your records at tax time. We need you to contact us during the process of making these decisions, in case there are things you need to know.
Here is a real world example from the 2016 filing season.
A client of mine sent his records in and included information on the sale of one rental property and the purchase of another rental property. He assumed that because he rolled the profit from the sale into a new property, he wouldn’t be taxed on that gain. Unfortunately, that was an incorrect assumption.
When exchanging like properties, there is a way to avoid paying taxes in the near-term. Known as a Section 1031 exchange, there are several requirements that must be met. Had my client contacted me when he was contemplating the sale, I could have helped him do it in a way to avoid taxes on the transaction in 2015. But because he didn’t call me, he ended up paying a few thousand dollars in tax. This was not good news for me to deliver, and it was not good news for him to receive.
Here’s another example… My own mother.
A retiree, my mother decided to withdraw from her IRA to finance a small addition to her home. She had taxes withheld from the distribution, and assumed she would be OK. She never even thought to call and ask me. What she failed to consider was that her distribution was substantial enough to make her Social Security income taxable. She ended up paying several thousand dollars in tax, much more so than interest she would have paid on a bank loan.
The moral of the story is that we are here to help you, if you just stay in touch with us during the year. Sometimes a quick ten-minute phone call may be all that is necessary. It never hurts to ask, and there are no stupid questions. Other times, we may need a bit more information from you to sort it out. But the time necessary to evaluate it saves us time during busy season, and could potentially save you a lot of tax dollars.
So please, don’t be a stranger. We want to hear from you! For starters, contact us today.