Year End Tax Planning

Do you have an unusual situation in comparison to last year?  If so, please go see your tax adviser.  Otherwise you could be surprised by a tax bill in April.  Even if your adviser charges a little, the advice could be worth well more than what you pay.  We don't charge for tax planning if they are a current client.  Ask your tax professional if that's included.  Paying a little more for that inclusion would be well worth the extra.

For instance, if you normally get the Earned Income Tax Credit with several kids as exemptions and the only income you have this year is unemployment, you may be in for a rude awakening, especially if you did not choose to withhold taxes on that unemployment.  Under the tax code unemployment is not considered earned income and you will not be entitled to any EIC which for many is a very substantial credit and is the driver for getting a refund.  Instead you may be looking at a balance due.  Working even a minimum wage job is far better than staying on unemployment, even if at a glance the unemployment is more on a take home pay basis.

The EIC, the additional child tax credit, and the making work pay credit all snowball and become a dynamic threesome of refundable credits that push up a tax refund to almost absurd levels when compared to the income earned.  For instance, a single person making $15,000 in unemployment would get no refund at all.  The same person making $15,000 in wages would get a windfall refund of at least $7,850.  You read that correctly -- at least 52% of what they made annually due to those three credits.

There are many other scenarios I could outline, but the more common ones for year end planning are:  Withholding adjustments, charitable giving methods, capital gains taxation, buying or selling real estate, buying equipment (for businesses and landlords), social security impacts (getting credits or early retirement planning), paying projected state or local balances due, setting up or contributing to pension plans, and medical expense payment timing.

If you do your own taxes and your situation is different, it is well worth an afternoon to sit down and do a projection based upon last pay stubs and estimated amounts.  The well of opportunity and tragic consequences run equally as deep without planning.  I urge you to thwart the latter.