Please note the information below is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of the information provided below should not be acted upon without specific professional guidance. Please call us if you have any questions.
As CPAs, we know that over a persons lifetime, they will come to several key points in life where the choice they make has significant financial implications. Almost everyone considers the four events listed above as a key point to consider working with a financial advisor, most often a CPA. These are the obvious choices but they are even more complicated than most clients realize. For example, consider these nuances to these four milestones:
-Marriage – this is more than the young couple just getting started, what about:
-saving for a daughter’s marriage?
-re-marriage with a blended family ex-spouses making claims for child support where the new bride and groom need to keep finances (and assets) separate
-2nd marriage late in life for a retired couple (implications of blending finances is a different; some seniors opt NOT to get married because of the tax implications
-Children – the birth of a new child is an amazing event, but child provide other tax savings opportunities and considerations like:
-The child and dependent care credit
-Adoption credit
-Special benefits/incentives for special needs children
-Dependence exemption for divorced or separated parents
-College – did you know there are over 14 separate tax incentives related to higher education, from credits and deductions to tax-deferred savings. The sheer volume of choices often leaves most taxpayers confused and many don’t take full advantage them, or even pick the incentive that results in the most value. Available incentives vary by year, type of education, age of child and nature of expense. Working with a CPA ensures that the taxpayer will take advantage of the right incentive at the right time and take full advantage of the tax benefits!
-Retirement – this isn’t just about saving for retirement or how distributions are taxed. Other considerations are:
-Evaluating the different options available for self-employed taxpayers to set up retirement accounts
-The value of itemized deductions often changes once someone retires, since it may mean they no longer have mortgage interest so special planning should be done each year to evaluate the benefit of itemizing to make sure clients understand the real after-tax benefit of their charitable giving
-A popular question for retirees is whether they should start collecting social security now or wait until later – this is always a good analysis to run in the years leading up to retirement rather than leaving clients to wonder
After all of this, the one big recurring financial transaction that is often overlooked as a key planning tool is the actual tax return. So many see it as an annual rite or obligation, but CPA tax practitioners know that the 1040 is just the beginning of the story. By evaluating what is on (or not on) the tax return, asking probing questions and watch for trends and changes over the years, CPA tax practitioners are uniquely situated to provide holistic financial advice that considers all the major milestone while simultaneously consider the tax implications (and planning opportunities) all along the way.