Accountants Who Come To Us For Guidance
David M. Kaufmann, CPA
2831 Wyecliff Way
Highlands Ranch, CO 80126
PO Box 632285
Highlands Ranch, CO 80163-2285
Tax Surprises Can Be An Inconvenience –Tax Surprises Can
Also Ruin Your Life
Here are some examples of situations that can cause these
unwanted, possibly devastating, surprises:
- Receiving a substantial bonus without sufficient
- Receiving a large inheritance
- Realizing large amounts of capital gains or capital
- Taking large amounts from a 401(k) plan or from an IRA
- Receiving a moving allowance without sufficient
- Owning all or part of a business that suddenly does
very well or is sold
- Withholding too little or not paying in enough in
estimated tax payments
- Other significant increases in income or significant
decreases in deductions
Notice that many of these situations causing tax
problems would otherwise be considered very good financial events.
Tax surprises can also be caused by changes in the tax
law. For 2013, you may be looking at tax law changes as follows:
- Higher tax rates (39.6%) for incomes over $400,000
(married over $450,000)
- Itemized deductions being phased out when income is
over $250,000 (married over $300,000)
- Tax exemptions being phased out when income is over
$115,000 (married over $154,000)
- Wages and other compensation taxed at an additional .9%
when income is over $200,000 (married over $250,000)
- Investments taxed at an additional 3.8% when income is
over 200,000 (married over $250,000)
The Solution Is To Run One Or More Tax Projections
Like anything else when using good software the quality of
your inputs is critical. GIGO - Garbage In Garbage Out. The key to making a good
tax projection is to use your most recent tax return, and determine what items
will change. This can be as much of an art as a science.
I have been helping clients all over the country with
tax planning since 1978. If you would like my assistance, do not hesitate to
call at 1-720-493-4804. - Dave Kaufmann
The most serious problem in creating reasonable tax
projections is dealing with uncertainty. For example, what wage amount should
you assume, when it is too early in the year to know what your wages will be?
The best way to deal with uncertainty is to consider realistic alternatives.
Using wages as an example, what is the lowest wage amount that you can
realistically earn for the year; what is the most likely wage amount that
you can realistically earn for the year; and what is the highest wage
amount that you can realistically earn for the year?
There are several different strategies when making tax
projections. One strategy is to look at multiple alternatives for a given year.
Another strategy is to look at multiple years. A more complex strategy would be
to look at multiple alternatives for more than one year.
It is imperative to use good quality software. Good tax
projection software is not cheap. The gold standard in tax planning is the BNA
Income Tax Planner starting at around $600.
What to do once the tax projection is done?
If you are in a situation where you can take more or less
income at your discretion, or you can increase or decrease deductions (this
might trigger the Alternative Minimum Tax (AMT)), you have something to work
with since you can alter your tax situation.
If there is not much that you can change to alter your
taxes, plan to adjust how you pay your taxes:
- Modify your withholding
- Modify your estimated tax payments
- Come up with a plan to set aside funds for your future