2021 Midyear Check-In

It is the middle of August and like most people you are probably enjoying the summer season. I particularly enjoy the long days, warm nights, and time with my family.

Also, most likely, taxes are the furthest from your mind at this point in the summer. “Who needs to think about taxes in the middle of the summer. I don’t have to file my return until April 15th, 2022 which is months away,” you may be saying to yourself.

If you are saying something like this to yourself, I completely understand. Who wants to think about taxes when you can go outside, spend time with my family, go on a walk, go swimming, go on vacation, etc. Trust me, I understand. Sometimes, even I have hard time sitting in my office on these nice summer days. I would rather be outside.

However, it may be worth your while to take 10 minutes to perform a mid-year check-in with yourself to see if you are on path for tax success come April 15th 2022. Below are five things to think about when doing a quick mid-year check-in.

  • Have you had any major transactions year to date that you have not discussed with your CPA?
    • I find this a really important question to ask yourself because it could reduce or eliminate any surprise tax consequences come April 15th. Let me illustrate.
      • A few years ago, I was attending a midyear check-in meeting with a client (in July) about his business and he casually mentioned that he sold a rather large asset. Up to this point he hadn’t considered the tax consequences of the sale. We discussed the tax impact and we both realized there would be taxes due on the sale come April 15th the following year. Because this discussion happened in July, he had almost 8 to 9 months (until April 15th) to plan for the taxes.
      • Contrast that story to a different client who came to me early in the year (January time frame) and asked if I would prepared his tax return for the previous year. We prepared the return and come to find out he had sold a large amount of stock (back in February or March of the previous year) in order to purchase a vacation home. Nothing wrong with that, except he wasn’t aware of / planned for the tax consequences of the sale of stock due to the capital gains. Unfortunately, this lead to some last minute planning to come up with the cash to pay the taxes. Because the sale happened back in February or March of the previous year he could have had plenty of time to come up with the cash to pay the taxes if he had checked in with his CPA during the year.
    • As you can see, being proactive when it comes to tax planning always pays higher dividends then waiting until the last minute.
  • Are the withholdings on your wages still adequate, too much, or too little?
    • Your withholdings is based on the W-4 provided to your employer. If your life situation has changed (i.e. had a child, married, divorced, etc) then you really need to update your W-4 with your employer. Not updating the W-4, after a life event, can cause too much or too little to be withheld from your payroll and come April 15th 2022, you may receive a larger refund than expected (due to over withholdings) or you may have to an unexpected tax (due to under withholdings).
  • Are your retirement plan contributions where they need to be?
    • Did you receive a raise during the year and now you can contribute more to your company’s 401K? Maybe cash is tight for you and you need to decrease your 401K contributions. Do you have a plan for retirement and are you contributing enough to reach that goal? All of these are things to consider now rather than waiting until the end of the year.
  • Did you start a side hustle / business this year?
    • If yes, then now is the time to meet with a CPA to discuss the tax implications of your new side business and what can be done to save on taxes later.
  • Finally, have you been paying attention to the potential tax law changes that the current Presidential Administration has proposed?
    • The proposed tax law changes are beyond the scope of this blog post and are still in the early stages of being worked on by Congress. However, it is worth being up to date on what the proposed tax law changes potentially could be, from a high level perspective. Such knowledge will give you leverage when it comes to planning for them once and if they are passed by Congress. Just the other day I talked to a client about the proposed tax law changes that potentially could affect her. I told her there were no actions we needed to take now (because nothing is passed yet), but she is aware that something may be coming and can start thinking about it.

By taking 10 minutes to ask yourself these five questions, during this summer season, you can set yourself up for success come next April 15th.

If you have any questions please contact Eric Bell at Isler CPA.