Avoid Tax Season Surprises: What You Need to Know

TRANSCRIPT: 

If there was a death and you inherited money and that person was of RMDH, you need to see if they took their RMD last year in the year they passed away. Welcome to the Financial Foundations podcast, your gateway to the fascinating realm of finance, brought to you by Base Wealth Management. In this show, we delve deep into the world of money, guided by seasoned experts who will unravel the complexities of finance and provide you with invaluable insights and practical advice. Now, here are your hosts, Dustin Taylor and Alex Wolfe. Welcome back to Financial Foundations, brought to you by Base Wealth Management, where we are the foundation to your financial plan. I'm your host, Dustin Taylor. I'm your co-host, Alex Wolfe, certified financial planner. 

And today we are talking about being prepared for tax time. Before we get too deep into this, I want to make it clear that this is not tax advice. This is for educational purposes only. We are not CPAs, so consult your CPA for personalized advice on your situation. Alex, what are like five key considerations that people should think about whenever it's tax season? Yeah, so tax season can be kind of overwhelming. You know, you're trying to gather all your documents. You might have tax forms from different places, you know, your workplace retirement accounts, your brokerage account, IRAs, W-2s. So these are some things that you want to make sure that you have gathered, and some of them may not be available yet. You know, as you get closer to tax time, 1099s start coming out. You should probably already have your W-2, but you want to make sure you've got that. 

Also, if you worked for multiple employers in 2024, you will have multiple W-2s, so don't forget about that. That way you report all of your earned income from last year, and if you're a retiree, you want to make sure that you've got your 1099Rs from all your retirement accounts that you might have taken withdrawals from. If you're in any type of alternative investments, private placements, and you're getting a K-1, remember some of those don't come out till close to tax deadline or even after. So you may even have to consider filing a tax extension if you're waiting on some of those more complex tax forms. Another thing that you might need is, I remember last year, I believe the IRS like refused to accept my return because I didn't include the form from my health care. If you had a marketplace plan, then you need to put that through because if there's a subsidy, they need to know your income so that you have to pay it back if you made too much money, right? 

Right. There's those, and then there's also some tax documents related to like if you own a home and it shows the mortgage interest, things like that. What are some other things that people might qualify for to like reduce their taxes? Yeah, so you want to make sure that you're taking advantage of any of the tax credits or deductions that you personally or as a family may qualify for. Education expenses, if you made any energy efficient upgrades to your home, the EV tax credits, a lot of them moved to point of sale last year. No longer do you, you know, claim that tax credit at the tax filing, but make sure you got credit for that, whether you purchased it and they give it to you at that time. Also for deductions, if you haven't made your IRA contributions yet, you have until April 15th to make those deductible and non-deductible contributions to your IRAs. So that way you're getting, you know, a deduction there. 

Also HSA contributions, you still have time. You don't have to do those by the end of December. You again have until April 15th to make any HSA contributions to take advantage of that deduction as well. What about the Roth divide? Same, April 15th to do Roths. You know, those aren't necessarily deductible because you're going to pay taxes on them, but you still have until April 15th to get them done for 2024. How might any major life changes affect your taxes? Yeah. So with that one, there's some things to consider such as if you got married, you know, you might consider filing jointly now, maybe not. You should maybe seek a tax professional to help you make that decision. But if you have somewhat equal earnings, meaning you don't have a big discrepancy of one really high income earner and a relatively like low or very little income earner, you may consider filing separately or jointly now that you are married. 

Also if you purchased a house, don't forget to look into your mortgage interest. And if you made any, you know, repairs or anything like that, add that to your cost basis. If you transition jobs, as I mentioned, you'll have multiple W-2s potentially to file for multiple jobs. And also if there was a death and you inherited money and that person was of RMDH, you need to see if they took their RMD last year in the year they passed away. And for our small business listeners, what are some things that they should be thinking about before the April 15th deadline? Yeah. You know, obviously being organized goes a long way. So you want to make sure you're gathering all of your income statements, your expense receipts, and your tax documents, payroll reports, bank statements, those types of things to give your CPA. So that way they have an organized file and you're accounting for all of your income, your expenses, those types of documents to, you know, take advantage of some of the things that you can write off and deduct. What should they consider when it comes to their company retirement plan? 

Yeah. So again, you have, you know, a couple months yet to start thinking about or make your retirement plan contributions, not only for yourself, but your employees. So if you, say, are looking at your taxable income from 2024 and like, oh wow, you know, I made a lot of money, you really should consider, you know, contributing to your retirement plan for last year to take advantage of deductions to get your taxable income down from where it is currently. And make sure you're also talking to a professional about what type of retirement plan makes the most sense. You might have grown your business so much that you might now really consider a 401k versus, you know, a SEP IRA or Simple IRA. As you've done in the past, you might be able to adjust your retirement plan to be able to contribute more to it and take a bigger deduction. What about estimated taxes? So that's something definitely to consider. 

You might, you know, be making so much money that you need to pay estimated quarterly taxes to avoid any type of penalties. If you wait and don't pay taxes throughout the year, you might be penalized because you didn't pay anything all year long, where if you're just a standard W-2 employee, you're getting, you're sending money to the IRS basically every paycheck because you have taxes deducted automatically from your pay. As a small business owner, that is not the case. So you need to make sure you're working with your CPA to determine the appropriate time and do you need to make quarterly estimated tax payments to avoid a potential penalty for not paying in during the year. Right. And I believe that those penalties have gone up in recent years. They're actually quite hefty now. 

I know it used to make more sense to not pay the quarterly payments, put it in the stock market, and then, you know, you'd make more money than that. But now the rates have gone up so much that that no longer makes sense. Yeah, I understand. Right. The penalty now is pretty substantial. So to avoid that, quarterly estimated payments are probably the right answer. Are there any considerations that people should make about their entity structure, you know, whether that's an LLC, maybe starting an S-Corp? Yeah, there are potential ways to save on different types of taxes depending on your business structure. So you should have that conversation with a financial professional or your CPA to make sure you're set up as the right type of entity. One, to make sure you're protected. Also, two, that you're possibly saving on taxes if you're not structured or if you are structured in a certain type of way, you could be saving on taxes. Right. And if you have any other questions about anything to do with small business, you can reach out to joshpisa at basetax.cpa for help with that. I'm sure he'd be happy to help. As for tax preparation, Alex, is there anything else that anyone should consider or can you just summarize what we've talked about here today? Yeah, I think we hit on the big points about things to consider and prepare as we approach April 15th. And just to summarize that is make sure all your tax documents are ready before filing your taxes to prevent having to refile. So you want to check to make sure all those documents are already ready before heading off to your CPA or before using one of the online software. 

Make sure you're considering or have already done contributions into your IRAs, Roth IRAs, any of that that you could still take advantage of for a prior year contribution if you haven't done those. NHSA, as a small business owner, make sure you've factored in the retirement plan strategy that you've contributed for yourself or your employees to get those deductions and reduce your tax liability. Consult your CPA to make sure your business is structured correctly from an entity standpoint. If you've grown and now you should consider, you know, setting up an S-Corp and no longer as a sole proprietor, LLC, whatever it might be, they can help you potentially save on taxes if you file under the right type of entity or create the right type of entity. And if there was any major life updates, we talked about if you've gotten married, purchased a home, those types of things could affect your tax situation and if you're filing jointly or have mortgage interest or anything like that to potentially itemize. Itemizing taxes has become extremely difficult because there's very few things that you can itemize, especially as like a W-2 type of employee. So most of us are taking a standard deduction. 

I guess that sums up our tax episode for today. Be sure to remain diligent for that April 15th deadline and if you need any help or you'd like more financial resources, you can always visit the Base Wealth Management website at basewealthmanagement.com. As I said earlier, you can reach out to Josh if you have a small business at basetax.cpa. Don't forget to subscribe to our podcast on your favorite listening app. You can find all of our resources online. Also, if you have any questions or topics that you'd like us to address or go over on the podcast, you can submit those to us at question at basewealthmanagement.com. I'm Dustin Taylor. I'm Alex Wolfe. And happy listening. We hope the expertise shared by our hosts, Dustin Taylor and Alex Wolfe, has left you feeling empowered and informed. If you're eager for more financial wisdom, don't forget to subscribe, rate, and share the show with your friends, family, and colleagues. Until next time, stay sharp in the world of finance. Transcribed by https://otter.ai