March 28, 2022
The April deadline is approaching, though tax season has been well underway for some time. Small business filings under Form 941, for example, were due at the end of January to avoid penalties. Individual payers will be working with their tax teams to finalize their returns and implement any last minute changes.
It’s easy to become overwhelmed by the tax process. The past two years of the pandemic, plus regulatory changes looming in the background, have put added pressure on people from planning, legal and compliance perspectives. As a result, at least one additional appointment with your tax attorney between now and April 18 can make a significant difference.
Until you are ready to file, and really throughout the entire year, there are a few broad things to be kept in mind.
Organize all of your due dates – or have someone do it for you
Particularly when their financial arrangements are complex, the last thing taxpayers want to do is overlook anything by accident, and then either be liable for paying penalties or caught up in an audit. This happens more often than you might imagine, and it is essential to have a safeguard if you are the main person organizing and filing your returns.
It is not a waste of your lawyer’s time, or that of a member of their team, to help you double check on due dates for federal as well as state and municipal taxes if applicable.
Depending on your personal circumstances, this may include your required minimum distribution (RMD) dates for retirement accounts, filings for household employees, compensation filing dates for people impacted by natural disasters – and the separate June 15 date for taxpayers living or filing their federal income taxes from overseas.
Double check on itemized donations and charitable contributions
For many people, their 1040-A lists can be relatively extensive. Remember that for cash contributions to charity, these can be deducted up to $600 for married taxpayers who file jointly, and $300 for single filers. But non-cash charitable contributions, involving gifts of property, are assessed separately. Those valued over $5,000 need to receive a qualified appraisal, the forms of which are then appended to your tax documents.
Work closely with your tax attorney to ensure all of these provisions are completed properly and legally.
Determine if any special circumstances apply to you
The annual tax return will likely be accompanied by other documents outlining their assets, holdings and earnings.
One example of such a situation is the filing of a Foreign Bank and Financial Accounts (FBAR) Report, which is required for anyone earning income from accounts outside of the United States. If you need to file this form, it, too, is due in April. On it, you will provide the largest monetary value of cash and other assets in U.S. dollars (rather than their local currency amounts). You generally have until mid-October to stay compliant if you miss the first deadline in April.
Ensure you are maximizing your allowable savings
For example, several states do not impose personal income taxes, but still levy sales taxes that can add up to a significant sum for many taxpayers over the course of the year.
When itemizing, you are typically able to choose to either deduct state income taxes or sales taxes, depending on which route saves you the largest amount of money. Be aware, however, that the SALT (state and local tax) deduction cap – which is a subject of conversation in Washington right now – does mean that these write-offs are added on top of the property tax you pay, for a cap of $10,000 a year for joint filers.
The ins and outs of SALT deductions can pose challenges, and it will be beneficial for you to receive legal help in navigating them.
Be aware of what’s ahead
Preparation will be key when it comes to additional tax changes beyond the filing date and getting geared up for 2023.
Uncertainty is still in the air around the Build Back Better Act, posing the specter of changes in how Roth IRAs can be converted, for example. And while the estate tax exemption has already been raised, the current law will sunset in 2025 – meaning that it is in earners’ best interests to take full advantage of current rules while they still can.
Because of their experience in balancing maximized compliance with achieving the most advantageous and sound structuring, you should maintain a close relationship with your tax lawyer both during the next few weeks and past tax season. Change is a certainty in both life and taxes – but being caught by surprise does not need to be.