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tax preparation

Tax Planning Advice for Major Life Changes

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We can never predict what life has for us. 

There may be significant milestones and changes that can impact your finances. It may be marriage, a baby, buying a home, changing careers, or nearing retirement. These life changes all have their unique tax considerations. Proper tax planning during these times can help you navigate these transitions more smoothly and maximize your financial well-being. 

Here are some tax planning ideas for major life changes:

  1. Marriage. Marriage changes your tax situation. If you’re recently married or about to get married, consider the following:
    • Update Your Filing Status: Choose between filing jointly or separately. Filing jointly often provides more tax benefits due to lower tax rates and increased deductions. Calculate both scenarios to determine which is more advantageous.
    • Review Withholding: Update your W-4 with your employer to reflect your new marital status. This will ensure that your withholding accurately reflects your combined income and tax situation.
  2. Baby: The new member of your family is a life-altering event that also impacts your taxes:
    • Claiming Dependents: You can claim a child as a dependent, which could lead to valuable tax credits such as the Child Tax Credit and the Earned Income Tax Credit.
    • Childcare Expenses: If you’re returning to work and paying for childcare, you might be eligible for the Child and Dependent Care Credit, which can help offset some of these costs.
  3. Purchasing a Home: Becoming a homeowner has tax implications:
    • Mortgage Interest Deduction: Depending on your income & deductions you may be able to deduct mortgage interest paid on your primary and, in some cases, secondary residence, which can provide substantial tax savings.
    • Property Taxes: Property taxes are often deductible, so keep track of these payments for tax purposes.
    • Home Office Deduction: If you use a portion of your home exclusively for business purposes (not applicable if you are compensated by W2), you might be eligible for a home office deduction.
  4. Changing Careers: Transitioning to a new job or career can lead to changes in your tax situation:
    • Job Search Expenses: Some job-related expenses, such as resume preparation and travel for interviews, might be deductible if they exceed a certain threshold.
  5. Approaching Retirement: As you near retirement, strategic tax planning can help you make the most of your savings:
    • Social Security Timing: The timing of when you start receiving Social Security benefits can impact the taxes you owe on those benefits. Be aware of the potential tax consequences.
    • Required Minimum Distributions (RMDs) for 2023: Once you reach the age of 73 (or 70½ if you were born before July 1, 1949), you’ll need to start taking RMDs from your retirement accounts. Plan for the tax implications of these distributions.
  6. Estate Planning: This is a critical aspect of your financial journey that affects your loved ones:
    • Gift and Estate Taxes: If you plan to gift substantial assets or have a sizable estate, understanding the gift and estate tax thresholds and exemptions is important for tax-efficient transfers.
  7. Divorce: Divorce can have significant financial and tax ramifications:
    • Alimony and Child Support: Understand the tax treatment of alimony (taxable to the recipient, deductible by the payer if the divorce was finalized by the end of 2018) and child support (non-taxable).
    • Property Division: The division of property during divorce can have tax consequences. Consult with professionals to ensure equitable and tax-efficient outcomes.

You should seek advice from a tax professional or financial advisor. They can guide you based on your specific circumstances and help you make informed decisions that align with your long-term financial goals. Tax laws can change, so staying informed and proactive is key to optimizing your financial situation during every stage of your life. 

A.K. Burton, PC, has experienced accountants who can help you do your tax and estate planning for now and the future changes in your life. Call us at (301) 365-1974 for a consultation.

We serve the Bethesda, Rockville, and Montgomery County, MD area.

*** For more information on marriage and taxes, visit the Tax Policy Center website.  

 

 

Accounting, Investment Advice

Year-end Retirement Planning Strategies

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As we come to the end of 2021, as you are making plans for the Thanksgiving and Christmas holidays, you may want to take some time out and look at your retirement plans, too. No matter what your age, your career advancement, or where you live, it’s not too late to begin, or add to, your retirement plans.  

In fact, this is a good time to assess your progress in planning and see if there are any gaps that need to be filled. So, here are several tips on how you can do retirement planning. You need to be informed. You need to know all the retirement options available to you. Discuss your available retirement planning options through your work. Do some quick web research. Consult your financial advisor and tax advisor.

Not enough? The following are possibilities for your retirement plan: 

    1. Taxable brokerage account: These are accounts funded with after-tax dollars. There are no contribution limits. Just remember that capital gains and investment income are taxable.
    2. Tax-deferred accounts:  These include the following: Traditional, SEP, & SIMPLE IRAs, 401(k)s, and 403(b)s. There are contribution limits depending on the plan. Also, depending on your tax bracket a tax deduction for the year that the contribution was made may be applicable (check with your tax advisor). Don’t forget about the required minimum distributions! The IRS requires withdrawals once you reach the age of 72 if your 70th birthday is July 1, 2019, or later. Roth IRAs do not require minimum distributions.
    3. Medicare: Medicare is a benefit for seniors 65 and older; however, it still has costs to it. Medicare doesn’t cover certain medical expenses like hearing aids, vision care, dental care, and long-term care. It also has large gaps in prescription coverage. In your retirement planning, you may want to budget supplemental medical insurance that goes beyond Medicare. Medicare Advantage and Medigap policies have premium costs and copays that supplement Medicare.
    4. Consider your cash reserves: Cash reserves help ride out stock market down cycles covering expenses while allowing time for investments to hopefully recover from the downturn.
    5. It is truly not too late: Don’t be discouraged! If you are 55 years or older without a retirement plan, it is not too late. Jump on the retirement planning bandwagon. It is possible to do! 

The main point here is that even if you are older and retirement is on the horizon, you can still make smart and logical decisions for your retirement. Consult with your financial advisor and tax advisor to make the changes you need to before the New Year begins.  

 A.K. Burton, PC, can help you do your retirement planning. We have experienced staff who can prepare your retirement accounts. Call us at (301) 365-1974 for a consultation. We serve the Bethesda, Rockville, and Montgomery County, MD area. 

Financial Advisor

Five Reasons to Hire a Financial Advisor in 2020

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2020 is almost here and you have a million things that you plan to do in the New Year. From starting a new business to getting out of debt to buying a car to sending a child to college, you and your family have plans. 

Then, there are plans that may happen whether you plan them or not: employment change, aging, inheritance, and other events out of your control. So, let’s talk about how these life events give you reasons to hire a financial advisor in 2020:

  1. Inheritance: The unfortunate death of a family member may bring an inheritance. That money and/or property may be substantial. You may have questions on whether it should be invested, taxes owed, (if any), or how it should be distributed or sold. An inheritance can be both a blessing and a burden. Your financial and tax advisor can advise you on using the inheritance to pay down debts, invest in IRAs or other investment vehicles, and other ways to work toward achieving personal and business investment goals. 
  2. Family planning: On the reverse, you may be planning to have children or there may be a pregnancy now. How do you financially plan for that? A child may cost around $234,000*** to raise during their eighteen years at home. Then there is college! Your financial advisor can give you guidance on how to save money for that child, even before they are born, and how that money can be used for a college education years later. Your tax advisor can discuss any tax benefits from these decisions.  
  3. Retirement: Many people hope to retire and enjoy their later years. Some people reach retirement age (65-70) and cannot stop working for financial reasons. However, even if you are in middle-age, it’s not too late to plan now. Your financial advisor can help you make smart retirement investments and plan your social security and estate. 
  4. Remarriage or divorce: Getting remarried or divorced brings on new life challenges. Do you and your new spouse have investments to cover your goals? Do you need to plan a new financial and investment strategy? How do you plan to pay your taxes in the coming years? How do you file your taxes in the coming years? Do you have a plan for Medicare and social security? If you divorce, how do you plan to pay child support or use child support? There are several crucial areas that a financial and tax advisor can direct you to make wise decisions.
  5. Selling or buying a home: You may be planning to purchase a bigger home or a smaller home based on your family needs (full nest or empty nest). How much do you need for a down payment? How much can you afford to pay as a mortgage payment? If you are selling, how much should you use to buy a new home from that sale? Will the gain from the sale of your home be taxable? A tax advisor can help you make the best decision for you.   

A New Year is a “clean slate” in some ways. The new year gives you the opportunity to make major financial decisions you didn’t make or were unable to make in 2019. Consult your financial advisor and let them guide you toward smart investing for now and the future. 

A.K. Burton, PC, has experienced tax advisors on staff who can help you plan for the tax consequences of these important financial decisions. Don’t wait. If you have a big life change, it’s time to reach out and call (301) 365-1974 for a consultation. We serve the Bethesda, Rockville and Montgomery County. MD area. ***See the report here.