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Things You should Tell your Accountant

Things You should Tell your Accountant

One of the best parts of my day is getting to talk with clients about their lives, their dreams and the ups and downs of life.  Often in the conversation, I learn something that has a big impact on the financial part of my client’s life.  It’s funny how sometimes I just find out these things by accident and then we can talk about the financial consequences.

Here is a list of 5 things you should always tell your accountant:

  1. You moved

With the mailing of thousands of stimulus checks, we soon remembered that it is beneficial  when the IRS has your correct address.  It’s also helpful to receive correspondence that comes to you regarding your tax account.

Many don’t realize the big impact that residency issues are to taxes.  For example, if you move to a new state you want to change your state withholding.  Especially if you work from home or are self employed, you should talk this through with your accountant.   Each state has its own tax structure and moving can have a big impact on your taxes

Don’t forget to discuss a move with your accountant before moving day.

2.  You got married or divorced

It may be obvious that Marital status has an impact on your life and your financial picture, but you would be surprised how few people have a conversation with their accountant when getting married or divorced. Even if you keep your finances separate, getting married changes how you file your tax return. A married couple can either file jointly or file as married filing separately but you can no longer file as single or head of household.    A married couple may find that filing jointly will help them, especially when one spouse has a lower income.  However, the filing status married filing separately (MFS) is not usually beneficial to a couple. “Why?” you ask?  Because the IRS assumes anyone filing MFS is hiding something; such a spouse with a high income. As a result, many tax credits and benefits allowed to those filing joint are lost when choosing MFS. We can help couples plan for these changes. 

Divorce is also a big change to your life and the financial impact is huge. So many things affect your taxes such as alimony, who claims the kids, filing status, and claiming expenses for the household such as mortgage interest and taxes.  Have a conversation with your accountant before you commit to a divorce decree.

3.   You had a baby

Getting married changes your life but wait until you have a kid. It’s surprising to us how many couples forget to tell us when they had a baby.  You should add your accountant to the list for the baby announcement because you get significant tax credits for having kids. Until they hit age 17 you could get up to a $2000 child credit.

4.  Your child leaves the nest

Most people do tell us when they have a kid, but often forget to tell us when that child heads off to college.  Education credits are a way to help cover college costs and you should know if you qualify for a tax credit. In order to get the credit your income must be below a threshold and careful planning (such as maximizing retirement plan contributions) can make a difference of up to $2,500 per child per year up to 4 years

5.  Sell property

Selling an asset has tax consequences. You either have a gain or loss that could change your tax liability.

When you turn a primary residence into a rental that asset now has a business purpose. When you sell that asset you will have a taxable gain or loss. With smart planning you can decide before you sell whether to defer the gain by doing a 1031 exchange.  A 1031 Exchange is a like kind exchange where you sell an asset and purchase a replacement property within a set time frame. You must set up the exchange prior to closing on your sale because you cannot receive cash from the sale, it must be held in trust to purchase the new asset.

When you sell a personal residence, you can take advantage of the IRC Sec 121 and exclude the gain (up to $250,000 for single or $500,000 MFJ) if you lived in the house for 2 of the past 5 years as a personal residence.   You will have to recognize gain a portion of the gain if you had some period of time that you used the house for a business or rental purpose.

Remember to utilize the help that your accountant can provide through life’s big changes.