Expat Tax Archives - Donnelly Tax Law

TAX DEADLINE: The IRS Finalizes The July 15 Deadline

The IRS will not consider auto-extending the tax deadline beyond July 15 this tax season, but options are still available.

Many have been calling it the never-ending tax season.

The changing tax deadline, along with a variety of potential tax incentives resulting from the COVID-19 pandemic, remains at the point of conversation during this tax season.

Until now, it has been unclear whether this tax season’s deadline would change yet again to help US citizens cope with the financial setbacks brought about by the coronavirus this year.

Background On This Tax Deadline

Due to economic downturns created by the coronavirus, the IRS and US Treasury officials changed the tax deadline from April 15 to July 15 back in March.

Until last week, the further postponement of the US tax deadline has remained a topic of discussion.

On March 13, 2020, the President of the United States issued an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act in response to the ongoing Coronavirus Disease 2019 (COVID-19) pandemic (Emergency Declaration). The Emergency Declaration instructed the Secretary of the Treasury “to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency”.

On March 18, 2020, the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) issued Notice 2020-17 providing relief under section 7508A(a), which postponed the due date for certain Federal income tax payments from April 15, 2020, until July 15, 2020.

For an affected taxpayer concerning specified filing and payment obligations, the due date for filing specified forms and making specified payments was automatically postponed to July 15, 2020.

This relief was automatic; affected taxpayers did not have to call the IRS or file any extension forms, or send letters or other documents to receive this relief. Footnote 1

IRS Keeps July 15 Tax Deadline

Treasury Secretary Steven Mnuchin announced the change in the tax return deadline back in March and continued to discuss the possibility of pushing the tax deadline beyond July 15 until recently.

The IRS has now confirmed that the deadline will not automatically extend to October 15.

Tweet

The US Treasury department has drawn the line at the administration’s consideration of such a move.

The IRS won’t extend the deadline, but they will provide payment options to help taxpayers in need as stated below:

“The IRS understands that those affected by the coronavirus may not be able to pay their balances in full by July 15, but we have many payment options to help taxpayers,” IRS Commissioner Chuck Rettig said in a statement. Footnote 2

How do I file an extension for my tax deadline to October 15?

If you need extra time beyond the IRS deadline of July 15, you can file an IRS extension.

Taxpayers who may continue to need additional time to file could choose to submit the appropriate extension form by July 15, 2020, to obtain an extension to file their return. The extension date will not go beyond the original statutory or regulatory extension date of October 15, 2020.

Here is information on how to apply for an extension of time to file.

Please be aware that:

An extension of time to file your return does not grant you any extension time to pay your taxes.
You should estimate and pay any owed taxes by your regular deadline to help avoid possible penalties.
You must file your extension request no later than the regular due date of your return.

How may we help you?

At Donnelly Tax Law, we take care of filing an extension for our clients, just to make sure we always have plenty of time.

Let us help you meet your tax needs. Talk with us today.

Or do-it-yourself with our resources for doing your taxes, from e-books to online courses.

Be sure to join our conversation on Twitter and follow us @CryptoTaxFixer.

What Clients Are Saying About Donnelly Tax Law

Clients of Donnelly Tax Law are reporting top-notch crypto and expat tax reporting results with Clinton Donnelly and his expert staff of Enrolled Agents.

At Donnelly Tax Law, we believe every crypto taxpayer can have a “Bulletproof Crypto Tax Return.” Our website offers powerful do-it-yourself resources and full-service crypto tax preparation services.

We’ve helped taxpayers owning cryptocurrencies:

Avoid over $40 million in gains by using Like-Kind Exchange calculations.
Prepared over 850 anti-money laundering reports required for many crypto traders.
Prepared over 1025 tax amnesty returns needed by crypto traders correcting back filings. (Our acceptance rate is 100% success.)
Moreover, we’re one of the few firms with experience defending crypto returns at an IRS audit.
We are experts at filing returns for expats and foreign corporations.
We have clients in 48 countries.

But don’t just take our word for it.

Here’s what clients are saying about Donnelly Tax Law:

Clinton's expert advice helped me utilize international tax treaties to avoid double-taxation by the IRS. I will continue using Clinton as my tax professional for the years ahead and would recommend him to any US citizen living abroad as well as any US citizen who is involved in trading cryptocurrency.

David

Sweden

The process was very easy. I feel confident my taxes have been done correctly and would like to thank him for the peace of mind this brings me.

Claire

Spain

Clinton took the bottomless headache of the crypto [currency] documentation required for taxes, and condensed it to a simple set of instructions.

Nathan

Saudi Arabia

Clinton assisted me in handling a complex cryptocurrency filing, for several digital currencies including Bitcoin, Ethereum, and Litecoin. His support allowed me to benefit from the financial growth opportunity of cryptos while conforming with developing US tax laws. It pays to stay on the right side of the law, and Clinton made it as easy and straightforward as possible. Thanks, Clinton!

Marc

Nevada

[Clinton] demonstrated deep understanding in a specialized area of tax law and is helping me achieve a great result – we’ve been able to go back and fix 5 years of mistakes and errors made by previous advisors that created significant financial impact. He’s also taken less time to complete the same work previously done by a small group of professionals. I’d be happy to recommend him to any American living overseas.

Aaron

Norway

Clinton is very knowledgeable and has hands-on experience in dealing with international taxation matters specifically related to Canada/US reporting. Clinton was able to identify several mistakes in a prior return that was actually prepared by one of the Big 4 accounting firms.

Umair

Michigan

Clinton is very knowledgeable and saved me money with my tax return.

Julie

Puerto Rico

He resolved my tax needs quickly and found discrepancies my last tax guys completely missed and saved me thousands of dollars in taxes. I wish I had found Clinton Donnelly years ago. Can't recommend him enough!

Emran

Texas

I had no idea about how to sort out my American taxes as an ex-pat living in the UK. Clinton made it easy and painless to get caught up on filing back tax returns.

Skye

As a US expat working in Europe, I highly recommend Clinton Donnelly to help you file/declare taxes!

Danielle

Spain

I really recommend him to any American who is looking forward to sleep in peace regarding Tax Return filing in the States while leaving abroad.

Rafael

Panama

Not only did he simplify the process immensely, but he was clear, fast and professional. If you're an expat looking tax help, I strongly recommend connecting with Clinton Donnelly.

Max

Spain

Clinton helped me a ton with cryptocurrency related matters on my tax filing this year. He works quickly and professionally and has a well-honed process every step of the way.

Matthew

New York

Clinton relieved the stress of figuring out the taxes due on my Bitcoin trading last year. He was efficient and timely. He answered all my questions related to my wallet and international tax laws on reporting.

Todd

Arizona

Clinton saved us money on our first encounter!

Deanna

Mexico

Mr. Donnelly was extremely professional, answered any questions, and gives exceptional service. I appreciate the attention to details and the handling of my taxes in such timely manner.

Rachel

Panama

I highly recommend Clinton if folks have foreign businesses or accounts in a foreign land as he is well versed with these types of returns and masters them.

Siddharth

Texas

I highly recommend Clinton if folks have foreign businesses or accounts in a foreign land as he is well versed with these types of returns and masters them.

Tyler

New York

I highly recommend Clinton for preparing tax returns for anyone with international interests.

Stuart

Texas

I thought do-it-yourself tax online tax preparation was straight forward but working with Clinton has definitely opened a new door for me.

Erich

Singapore

Clinton is extremely clever and truly knows the law environment you are working in. In our case, he even reviewed international tax treaties to improve our tax report, which ended up saving us a lot of money in taxes.

Santiago

Venezuela

I went through a dozen accountants, CPAs, and accounting partners. None of them were able to get my taxes filed, and after much searching and frustration, I finally found Clinton.

Ashray

Portugal

If you are an American expat it is imperative that you speak with Clinton about your situation before the IRS gets ahold of you. The IRS wants your money. Clinton can show you how to keep the IRS off your back and put more money in your pocket. Highly recommended.

Chuck

Panama

Rudi

Panama

If you have distributed assets and income or are concerned about succession planning, Clinton will accurately guide you through the legal minefield of international laws taking into consideration your country of residence, source of income, source location of income, citizenship, time in country as well as other factors to determine your tax status and I trust his guidance implicitly.

Jim

Columbia

I would highly recommend Clinton for anyone working overseas and specifically anyone looking to utilize the Foreign Earned Income Tax Exemption. I simply cannot say enough good things about Clinton and have recommended him to numerous people.

Michael

Hong Kong

For months I tried tracking down an accountant or anyone who had the experience and brain to be be willing to do the work and help me out with my situation. So I contacted [Clinton] - 15 minutes later he had the information I needed to sort everything out!

Pascal

Malaysia

Without any hesitation, I recommend that anyone with a US tax issue and who is “technologically and paperwork challenged”.

Mary

Panama

He's very professional, explains things in a clear manner and has a system set up which makes it far easier to communicate via the internet, which is important to us since we live in a different city than Mr. Donnelly does.

Karin

Panama

I went through a dozen accountants, CPAs, and accounting partners. None of them were able to get my taxes filed, and after much searching and frustration, I finally found Clinton.

Benedict

Germany

[Clinton] saved me thousands on my taxes this past year. He is wise beyond belief of the complexities of the tax code and he is also patient and concise in explaining it to the people who think the tax code is tangle of complexities.

Patty

Digital Nomad

Clinton took care of my tax return twice so far, and I’m glad he did. He provided excellent advises with a very smooth communication. He masters his area of expertise, I definitely recommend him.

Melissa

Panama

Clinton took care of my tax return twice so far, and I’m glad he did. He provided excellent advises with a very smooth communication.

Mehdi

Switzerland

Clinton was extremely helpful at explaining with great detail all the peculiarities of my situation and was very timely at returning all of my emails.

Ignacio

New York

Clinton prepared all the paperwork required and represented me whenever required to the IRS. He is extremely knowledgeable and a pleasure to work with.

Sandy

Canada

Clinton has been handling my taxes for the past 3 or 4 years. He's been a godsend! He provides clear and concise answers, excellent advice and amazing service. In today's political climate it's best to have all your bases covered with the IRS and Clinton's amazingly good at making sure you do.

Rebecca

Panama

Be A Happy Tax Client With Donnelly Tax Law

Now that you’ve heard from others who have benefitted from Donnelly Tax Law, consider becoming a happy client as well.

Schedule a consultation today.

Or do-it-yourself with our resources for doing your taxes, from e-books to online courses.

Follow Donnelly Tax Law On Twitter

COVID-19 Alert: The Silver Linings This Tax Season

Learn about the COVID-19 precautions we’re taking and some of the latest news and tips for enduring the pandemic and saving you money on your taxes.

Right now, times are uncertain with the spread of COVID-19.

Unpredictable emotions are running high, with massive changes forced on your everyday routines due to the Coronavirus.

But the human race is resilient and we are in this together as a global community.

In times like this, when things seem rather bleak, there is always a silver lining to be found.

We look forward to doing our part at Donnelly Tax Law to help you see those good things this tax season.

We know this year will be like no other and the last thing we want to add to your worry is interruptions to completing your taxes.

So, while we all learn to deal with this new COVID-19 pandemic together, we want to let you know you can continue to count on your tax family here at Donnelly Tax Law to get you through this trying time.

Practices That Make Us Strong During COVID-19

We are putting your safety above all else in the upcoming weeks.

As the COVID-19 pandemic forces changes in our everyday routines, our priority at Donnelly Tax Law is to ensure the safety of our staff and to solve the tax concerns of our customers.

Donnelly Tax Law was built intentionally for a robust operation that is resilient to virus threats, both medical and electronic.

Our work will not be slowed down by the pandemic. Even in normal times, we automatically file extensions for our clients so that the April 15th deadline is extended until October 15th. Read further for more information about the filing and payment deadlines being extended by the IRS.

Donnelly Tax Law is a team of remote workers and therefore we are not exposed to the health risks of a typical shared physical office. We will continue to work on your behalf, even with regional lockdowns.

Precautions We Are Taking During COVID-19

We are implementing quarantine procedures for deliveries we receive. This safety measure will add a couple of days to the paper return filing procedure, but it will keep us working happily and healthily on your returns.

All of our systems and data are cloud-based on highly-secure systems.
All data is encrypted.
All of our systems require two-factor authentication for extra security.

We are in communication with our vendors to make sure all critical systems remain available. We do not expect any unplanned outages.

COVID-19 Resources and How to Save A Lot Of Money With Your Tax Returns

We are still working hard for you! Donnelly Tax Law has a staff of eight people. We have always worked remotely, so the pandemic has not disturbed our business processes.

We also have a staff backup strategy, so that if any team member, including myself, needs to take sick leave, we have a backup so the work can continue.

Save 20% By Paying Your Invoice With Bitcoin

From now until April 15th, we are offering a 20% discount to current and future clients for any portion of your invoice that you pay or prepay with Bitcoin.

Our team is standing by to get you more details on how to take advantage of that special pricing.

Don’t have any Bitcoin? Start an account at Coinbase or Kraken.

Due To COVID-19, IRS Delay Filing And Paying By Three Months

To help cope with the COVID-19 Coronavirus, the IRS has delayed payments and filing by three months. July 15th is now the new due date for filing individual tax returns and making the final payment on 2019 taxes. There is no penalty for extra interest because of the three-month delay. We already automatically extend the filing deadline to October 15th for all of our customers.

The good news is that now there is extra time to pay!

If you are a client and your tax payment is scheduled already for auto-debit and you want to delay it, you will need to cancel the debit following the instructions in this link.

Making The Most Of The COVID-19 Isolation

If you are part of our tax community, you can take advantage of the extra free time to finish gathering all your tax documents and crypto records.

Once completed, upload them to your secure ShareFile folders and let our client manager know so we can proceed with preparing your taxes.

You can also use this time to learn more about US expat taxes and cryptocurrency taxes with the various ebooks I’ve written about each topic. Visit our online ebook store and discover additional crypto tax tools at our site CryptoTaxAudit.com.

Learn about other important COVID-19 news from our blog. If you haven’t already, you can subscribe to our newsletter so you get notified of our latest posts.

Clinton Donnelly In The News

One last note, we are excited to report that I’ve been staying at the top of crypto news this tax season. I’ve taken part in multiple interviews with several national and international crypto podcasters, such as crypto pioneer Charlie Shrem, Brad Kimes, Ivan on Tech and more.

WATCH NOW: Crypto Tax Amnesty? CPA Clinton Donnelly Shares Critical Insights on How to Talk to the IRS and File

Tax Filing Deadline Extended to July 15 Due to COVID-19

The tax filing deadline and payment deadline have been extended in response to COVID-19. Read more about how the IRS taxpayer relief efforts apply to you.

In response to COVID-19, the tax filing deadline has been extended by the IRS in efforts to help a great many individuals and businesses. They now have until July 15th to pay any federal income taxes they owe. The delay is available to individuals who owe $1 million or less and corporations that owe $10 million or less. The IRS will not charge interest or penalties for this delay.

Payment and Filing Deadlines Extended

Previously the IRS had only postponed payment, not filing, but on March 20th the Treasury announced filing would be postponed as well.

This could be an enormous boon to those who owe money. It’s never easy finding the cash to write the government a check, but it’s especially difficult now, as the coronavirus has curtailed so many activities: Many businesses and employees are seeing a drastic drop in income, and decimated stock portfolios may force some investors to sell at a loss to cover tax bills. Hopefully, in three months, taxpayers will be in a better position to pay.

Refunds, Federal & State Returns

For those who have already filed and are expecting a refund, nothing has changed; this does not mean they will have to wait any additional time for their refunds. Those expecting a refund have no reason to take advantage of the delay–it’s to their advantage to file as soon as possible.

This delays in filing and payment only affect federal returns, not state. However, some states are offering similar relief. The American Institute of CPAs has created a list of what each state is doing.

Note that this is a fast-moving story, so even if your state has nothing planned as of today, that may change by tomorrow.

Details of the Tax Filing Deadline Extended

This tax postponement plan began as an oral promise, but the IRS has started to issue more details and guidance in its e-newsletter:

The individual taxpayer relief includes all individual returns, includes self-employed individuals, and all entities other than C-corporations, such as trusts or estates.
The IRS will automatically provide this relief to taxpayers. Taxpayers do not need to file any additional forms or call the IRS to qualify for this relief.
For C Corporations, income tax payment deadlines are being automatically extended until July 15, 2020, for up to $10 million.
This relief also includes estimated tax payments for tax year 2020 that are due on April 15, 2020.
The relief only applies to federal income tax, not to any other kind of federal tax.

Since this is a very new program, we will be closely monitoring the situation for additional official guidance.

How We Handle Tax Filing Extensions

Here at Donnelly Tax Law, we automatically, and in normal circumstances, file extensions for all our clients. This gives our clients until October 15th to file. However, please note that it does not extend the payment deadline of estimated taxes, which are usually April 15th and now extended to July 15th.

If you’re already a client of our’s and have questions, please contact our client manager or use our contact page to be in touch.

If you’re not a client of our’s but are interested in having us help you with your taxes, please schedule a consultation.

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US Expat Tax: What You Need to Know as an American Living Abroad

US expat tax doesn’t have to be confusing. Feel secure as an American living abroad with these exclusive excerpts from my book “Expat Tax Overview”.

Here I share exclusive excerpts of my book, Expat Tax Overview, to show you how to handle US expat tax, the problems that can arise, and how to get good tax advice when you need it.

There is a lot of confusion for American expats when it comes to reporting US taxes while living abroad.

Most Americans living abroad aren’t aware that they must file US tax returns on their worldwide income and that they must report their foreign financial accounts and assets.

And it’s not their fault because even most domestic tax preparers are unaware of the requirements for US expat tax.

So, where should Americans living abroad turn when filing their tax returns? We at Donnelly Tax Law are here to help.

I wrote the book Expat Tax Overview to help Americans living abroad understand how they are taxed, to understand US expat tax preparation risks, and to explain how to benefit from credits and exclusions. It comes from the years of experience I have filing complex tax returns for Americans living abroad.

The following extractions came from the book “Expat Tax Overview”, by Clinton Donnelly of Donnelly Tax Law. It’s the handy overview that every American living abroad should have to understand how they are taxed.

Do I have to file my US tax return while living abroad?

Yes, The US is unique in this way from other countries.

All US citizens and permanent residents are subject to taxation on their worldwide income regardless of where they live in the world, and even though they may be filing another tax return in a foreign country.

It’s possible to have a foreign country tax your worldwide income if you are a resident or present for six months or more.

However, tax havens do exist with special incentives.

But each foreign country or US territory does it differently.

Puerto Rico is technically a territory of the US, but it has unique tax incentives that have been luring back American expats and crypto traders.

How can an American abroad survive paying US expat tax?

Congress implemented a couple of substantial tax breaks to offset the obligation of filing taxes when living abroad.

The first one is the Foreign Tax Credit (FTC).

The second one is the foreign earned income exclusion (FEIE).

What is the Foreign Tax Credit?

The foreign tax credit provides a dollar for dollar credit on your US taxes for income taxes paid in a foreign country.

What is the Foreign Earned Income Exclusion?

One of the most significant tax breaks in the tax code is the foreign earned income exclusion.

For 2020, the first $107,2002 of earned income overseas can be excluded from income taxes.

This exclusion can be used in any foreign country, whether or not you pay income taxes in that country.

There are a lot of rules regarding qualifying for this exclusion, so they must be followed closely.

I have written a 320-page book, Foreign Earned Income Exclusion, specifically on this exclusion.

If you think you might be eligible for the Foreign Earned Income Exclusion, you will find this book to be a real asset for you.

Your US Expat Tax Won’t File Itself

It would be best if you were proactive in making sure your tax returns get done correctly with all the foreign elements reported.

You cannot wait until the last minute to find a tax preparer.

It is better to find a trustworthy and experienced tax preparer who can provide you with advice as you make financial decisions and help you document your tax return at the end of the year.

Is your domestic tax preparer or CPA experienced with foreign information returns?

According to the IRS, less than 1% of all individual tax returns are international.

Thus, domestic tax preparers and CPAs are unfamiliar with the filing requirements and penalty risks.

Does Consumer Tax Software Support US Expat Tax?

Because the US expat tax marketplace is so small, no commercial tax software adequately supports the requirements of Americans living abroad.

We know that US expat tax filing requirements and the difficulty of finding qualified preparers may be overwhelming.

But don’t panic.

All you need is a plan and a qualified tax preparer to be on your team.

To get more information about US expat tax returns and the Foreign Earned Income Exclusion purchase my books below.

You can also schedule a consultation with me to discuss your particular situation and get a quote for services.

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You’ll also receive a special discount code for signing up!

Responding to an IRS Letter of Audit or Examination – What’s Involved

Even the possibility of getting an IRS letter can cause alarm, especially for crypto traders. But rather than worry, learn what’s involved and be prepared.

You open your mailbox and there’s an IRS letter asking about your crypto tax return. To respond to the audit, what work needs to be done and by who? It can be easy to panic and feel alarmed, but the best thing you can do first is to understand the process and your options.

What To Know If You Get an IRS Letter

Photo by Daria Nepriakhina on Unsplash

To understand what’s involved, and how best you can respond, I’m going to tell you about the five main activities during an examination of crypto transactions and records.

Substantiation is the producing of receipts, records, and evidence of any income or expenses under question. It includes gathering all exchange transaction records and off-exchange transactions related to cryptos. Only the taxpayer knows where these records are, so collecting them is their responsibility.

Accounting involves summarizing taxpayer records into tax reporting categories or forms. It is a taxpayer’s responsibility, but this work can be hired out. An example of this is using a crypto-capital gains calculation service to analyze transaction records to generate a list of gains. It is a complicated activity and critical to documenting the gains for the IRS.

Reporting involves preparing or amending tax returns to report income and expenses or anti-money laundering forms. During an IRS examination or audit of crypto reporting, this work is done by Crypto Tax Audit at no charge for its subscribers; otherwise, Crypto Tax Audit will provide this at a reasonable fee.

Representation is the strategizing and responding to tax authorities. It involves communicating with the IRS or tax authorities on the taxpayer’s behalf whether in writing or verbally, on all matters. This includes responding to letters, negotiating fast track mediation or settlement, negotiating with IRS Appeals office, requesting abatement, preparing taxpayer financial statements, applying for Currently Non-Collectable status or preparing Offers-In-Compromise petitions, keeping the taxpayer updated, and performing all other taxpayer dispute and collection options available in the tax code or Internal Revenue Manual.

For crypto-related examinations and audits, Crypto Tax Audit performs these services at no charge for its subscribers; otherwise, Crypto Tax Audit performs these services for a reasonable fee.

Controversy is the term used to describe when a taxpayer and the IRS disagree on how a matter should be treated under the tax laws and regulations. It is a significant activity because all crypto-related transactions are new and stretch how laws and regulations are interpreted. Controversy work requires legal training because it involves statutory interpretation and analysis of prior court cases, IRS rulings, and commentary from the congressional Joint Committee on Taxation. For crypto-related examinations and audits, Crypto Tax Audit does this work at no charge to its subscribers. This is an area of significant interest and investigation by Crypto Tax Audit to prevent the most persuasive arguments during IRS representation.

Litigation is needed when all efforts at escalation, appeals, and use of the tax advocate service do not provide a satisfactory result. A case can be taken to US Tax Court or Federal District Courts. A fresh legal case is prepared for arguing the tax controversy before a judge. Less than 4,000 cases per year are heard because the IRS uses its Appeals group to settle cases out of court if possible. While taxpayers can represent themselves at tax court, hiring an experienced tax litigation lawyer will increase the chances of winning. Paying for a lawyer is the taxpayer’s responsibility. Crypto Tax Audit will assist subscribers at no charge on crypto-related litigation efforts.

What Can an IRS Letter Entail?

Photo by Kelly Sikkema on Unsplash

Not all matters require all these skill areas. Often the cost is the driving consideration.

If your IRS letter is about collecting on a debt that is not disputed, then representation service is all that a taxpayer needs.

If your IRS letter is questioning the math on a return or the omission of reporting, then usually representation and sometimes reporting services are needed.

If your IRS letter is about a formal examination or audit, then more work may be needed. Substantiation, possibly bookkeeping, reporting, representation, and controversy work are needed.

Learn More: Our Services

Protect Yourself in the Case of an IRS Letter

As a service of Donnelly Tax Law, a Crypto Tax Audit annual subscription can ensure the best protection against crypto tax risks.

It’s the proactive way to have peace of mind and know you’re protected regarding your crypto taxes.

To learn more, visit CryptoTaxAudit.com.

Feature image by Kelly Sikkema on Unsplash

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It’s Never Too Early for Tax Planning

Good tax planning is a year-round activity that requires knowing your options and keeping good records. Easily stay on top of it with these great tips.

Benjamin Franklin once said “to fail to plan is to plan to fail.” This adage certainly applies to tax planning.

Although the Tax Cuts and Jobs Act of 2017 (TCJA) eliminated many deductions outright, there are exceptions. Certain deductions still exist but are being phased out, whereas others will expire after a set time. This means good tax planning remains an important aspect of good financial health.

Following are six steps you can take right now to prepare for your future taxes:

1. Adjust Withholdings

Determine whether you are someone who takes out more taxes every pay period so that you get a tax return, or whether you want the benefit of having the cash on hand right now. Adjust your withholding accordingly by filing a new Form W-4.

2. Organize Receipts

Start organizing your receipts now so you don’t accidently miss a deductible expense or a tax credit. Check the standard deduction for your situation, and consider whether you might need to itemize.

Having your receipts ready eases the tax preparation process. You should have the following categories of receipts and other documents handy:

Last year’s federal, state and local tax returns
Receipts/statements/cancelled checks for medical and drug costs, health savings account contributions, charitable contributions, contributions to retirement plans
Business travel and meal expenses (including a mileage log)
Childcare expenses
Receipts related to your home, including mortgage and line-of-credit expenses, repair and renovation expenses, real estate and school taxes (not all of these will be deductible, but they may help reduce your basis when you sell your home)
Any receipts related to a home purchase or sale
Receipts related to life events like marriages, divorces, births and deaths

Photo by Cytonn Photography on Unsplash

3. Review Your Investment Strategy

Short-term investments (those held 12 months or less) don’t get special treatment, but long-term investments (those held longer than one year) are typically taxed less.

4. Review Your Charitable Contribution Strategy

If you make large contributions, it may make sense to alternate the years in which you make the contribution so you can exceed the threshold for the standard deduction.

5. Evaluate Tax Credits

Consider whether you’re eligible for any tax credits so you can take full advantage of them. Tax credits are important because they are dollar-for-dollar reductions in the amount of taxes you owe. These credits may be refundable or nonrefundable. Refundable tax credits can reduce your tax liability below zero, while a nonrefundable credit cannot.

6. Review Your Estate Plan

No one knows what is going to happen in the future. TCJA changed many deductions related to gifts and estates; take this time to review the changes and make sure your estate plan reflects your wishes and is current. Keep in mind that some of the provisions now in effect are due to sunset in 2025.

If you need help preparing for your future taxes, schedule a consultation with us today.

Photo by Helloquence on Unsplash