Happy New Year and welcome to 2024! Before 2023 hits the rearview mirror, be sure to take inventory of any life events that might be critical to your taxes.

January is the start of tax filing season. It’s a good reminder for you to take a step back and make sure your accountant is aware of all the things that might impact your tax situation for your 2023 return and beyond.

You would be surprised at the things that clients forget to tell us. Here is a sample of some of things that we’ve found out after preparing a client return.

Getting Married

This is one of the most important items for us to know in advance. Marriage requires a change in filing status on your return (Single or Head of Household is no longer an option). Marital changes also impact your effective tax rate, deduction phaseouts, retirement contribution options and a whole host of other things. 

We often hear from clients that they “just want to keep their finances separate for taxes.” This often results in a disadvantageous tax situation. In our experience, at least 90% of families are better off filing jointly because of some peculiarities in the tax code. We ask for both spouses’ information to make this determination.

Had a New Child

While I’m sure our clients aren’t really forgetting they have a new little one to take care of, we’ve often been left off the announcement list. A new child can mean big tax bucks! The child tax credit is currently $2,000 for single individuals making less than $200,000 (jointly $400,000). The credit phases out at $50 per additional $1,000 in adjusted gross income above these thresholds.

Filed an 83(b) Election

If you have received restricted stock (not to be confused with RSUs) or nonqualified stock options, you might have filed an 83(b) election in the past. The 83(b) election allows you to claim the income immediately for stock options. This starts the clock on your holding period for long term capital gains. Companies will typically include the 83(b) election in your grant paperwork so it might be easy to miss.

It’s important to tell your accountant because without a copy of the 83(b) election, we won’t know to include this income in your tax return for the year. When it comes time to sell your shares, we also might report an incorrect gain since the 83(b) election helps to determine your cost basis (and ultimately your gain or loss).

Sold Stock and/or Stock Options

This is another big one that we often see missed by clients. If you have multiple investment accounts, it can be easy to overlook a year end tax statement now that many of these are delivered electronically. If missed, this will wreak havoc with your return and likely cause an IRS matching notice. These notices often will require an amended return and can take over 9 months to resolve. Best to avoid this whenever possible.

Another related item that’s easy to miss is forgetting to tell your accountant about a Qualified Small Business Stock sale. This is a super generous tax benefit that allows for $10,000,000 in tax free capital gains if the company stock meets certain requirements. If you were an early investor of a technology company, this can be a super benefit.

Leaving the Country

Whether you’re leaving the US for a short period of time or indefinitely, a move outside the United States can result in one of several tax complications. Best to let your accountant know as soon as you are making the move.

The US taxes citizens and tax residents on their worldwide income. BUT there are some exceptions and tax credits that can work to your benefit. Income earned overseas can potentially be exempt from US tax under the Foreign Earned Income Exclusion. Also, if you pay non-US taxes on your income, this can potentially be used as a tax credit against US taxation.

There are quite a few traps for the unwary, however. The US has strict reporting rules for non-US financial accounts. You’ll see these referred to as Foreign Bank Account Reporting (FBAR) and Foreign Account Tax Compliance Act (FACTA). Missing these reporting requirements can result in a $10,000 penalty. There are compliance programs available to retroactively report missed filings. However, they are complicated and exist at the whim of the IRS and US Treasury. Best to report foreign financial accounts correctly from the beginning.

Summary

While the above isn’t an exhaustive list of things to be sure to tell your accountant, I would encourage you to mention any unusual items in our year end questionnaire. The more we know about your year, the better we can help you save your hard earned money.

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