Taxes are no fun. In fact, they might join root canals at the top of the list of “least favorite things to do with your time,” which is why many folks tend to wait until the last minute to deal with tax-prep related responsibilities.


While it feels great just to get them done and out of the way, you may have missed some things in haste that could have produced a better outcome or decreased the chance of errors. Luckily, it can be different this year. All it takes is some mindful choices, a little organization, and perhaps a financial advisor partner to see better outcomes in the future.


Check Your Tax Withholding for the Upcoming Year


Federal income tax is a pay-as-you-go-tax, which means you pay the tax as you earn income during the year. In order to determine how much you pay out of each paycheck, you are asked to adjust your withholding amount on your W-4. Filing status, number of withholding allowances claimed, and additional withholding all affect how much is withheld from each paycheck. One way to avoid a surprise tax bill at the end of the year is to make sure you aren’t withholding too little throughout the year. To check and change your withholding, you need to review and possibly complete a new Form W-4 and submit it to your employer.


Avoid Triggering Major Tax Events


One of the ways many folks end up with a large tax bill at the end of the year is by liquidating assets that carry hefty capital gains taxes on them. Just last year, we worked with a client who inherited a lump sum from her mother and liquidated a significant amount of money to put a down payment on a house. But, because she wasn’t working with any type of financial or tax advisor at the time, she wasn’t aware of the tax liability that would result from doing so.


A good rule of thumb to keep in mind is this: if it looks like income, it will be taxed. There are moves that we could have made with this client (if she had been working with us at the time) to help her avoid this huge tax bill in the first place, but let it just go to show that major money moves, more often than not, come with major tax consequences. Always consult with a financial advisor before receiving funds or liquidating assets for income.


Get Organized


Keeping all your important tax documents in one place can make it much easier to coordinate with your accountant or CPA when the time comes. Below is an annual checklist you can use to start getting organized today.


  • Gather Your Personal Information


Your best source for your personal information is last year’s tax returns. They have Social Security numbers for you, your spouse, and your dependents. Note any changes that need to be applied to this year’s returns, such as additional dependents or an address change. They’re also good as a starting point for identifying all your deductions and credits. If you’re starting with a new CPA or accountant to help you, they’ll require this to get started.


  • Gather Your Income Documents


W-2 forms. You should receive your W-2 form by January 31, either through the mail or electronically.


1099 forms. You should receive a 1099 form for various sources of income, including 1099-MISC for any contract work you’ve done, 1099-K for income received by third parties, such as PayPal, 1099-INT for interest earned, and 1099-DIV for any dividends received.


Letter 6419-Advanced Child Tax Credit. If you received advanced child tax credit payments, you need to compare the amount you received during 2021 with the amount you are allowed to claim on your 2021 return. If you received less than the amount you are eligible for, you can claim a credit for the remaining amount on your return. If you receive more than you’re eligible for, you may need to repay all or a portion of the excess amount.


  • Gather Records and Receipts for Deductions


Generally, you can only claim deductions if they can be documented. This can be the most time-consuming part of tax preparation, but it can be worth it if it means lowering your tax bill. Unless you think your total deductions will exceed the standard deduction ($12,550 for individuals or $25,100 for joint filers in 2021), you don’t have to worry about itemizing your deductions on Schedule A. If your total deductions were close to the standard deduction last year, it may be worth running through them this year to see if any additional deductions could bring you over the top.


One place to look for additional deductions is with sales taxes. While you don’t need to keep sales receipts for claiming the standard sales tax deduction (based on IRS formulas), any sales taxes paid on large items, such as a car, home renovation, appliances, can be claimed on top of that.


A note regarding charitable deductions: The charitable deduction limit increase allowed under the CARES Act has been extended to 2021 deductions. That means you can claim charitable giving deductions up to 100% of your Adjusted Gross Income (AGI) on cash donations.


As always, your charitable contributions must be documented to claim them.


In addition, the above-the-line deduction for charitable deductions has also been extended to 2021. So, if you don’t itemize, you can still claim up to $300 ($600 for joint filers) of charitable donations on your 1040 form.


Other above the line deductions that can be claimed even if you don’t itemize:


  • IRA contribution
  • Health savings account contributions
  • Self-employment expenses
  • Moving expenses for military members
  • Student loan interest payments
  • Educator expenses


  • Estimated Tax Payments


If you make federal estimated tax payments, have your record of payments handy. This will help you and/or your tax preparer ensure all the bases are covered.


The tax preparation checklist may apply to most taxpayers, but every situation is different. If you are a business owner, you will need to follow most of the same steps in preparing to file your Schedule C. By taking the time and effort to thoroughly prepare for filing, you’ll cut down on the time involved in completing your taxes online. If you file your taxes with a tax preparer, you’re likely to save on fees.


Work with a Professional Financial Advisor


When it comes to taxes, you don’t know what you don’t know. And with the ever-changing tax code, there is A TON of stuff you wouldn’t know if you weren’t in the thick of it every day. That’s why we always remind our clients that tax planning is an integral part of wealth planning, and should be top of mind year-round, not just during tax season.


At Platt Wealth Management, we work with clients not only on financial life planning and investment management, but tax strategy, as well. We also collaborate with their tax professionals to help ensure all the bases are covered year-round. That way, when tax time rolls around, we don’t encounter any costly surprises.


If this sounds like the type of partner you’d like to have in your corner, we encourage you to schedule a complimentary consultation over the phone or virtually via Go-to-Meeting. Or, you can call the office directly at 619.255.9554. We serve clients locally in San Diego, California and virtually throughout the country. We look forward to meeting you.






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