August is the perfect time to review your year-to-date taxable income and allowed deductions for 2023, as well as factoring in your projected income and deductions for the remainder of the year.
Taking a look at your specific tax situation throughout the year helps to prevent any “tax surprises” next winter when you meet with your tax preparer.
If any of these items will apply to you in 2023, mid-year is the time to work through your planning opportunities:
- Did your marital status change?
- Did you switch jobs?
- Did you move from an employee position to being self-employed or vice versa?
- Did your private practice income significantly change from your earlier expectations?
- Did you lose your job and collect unemployment or take time off from work and receive Paid Family and Medical Leave Benefits?
- Did you exercise company stock options?
- Did you buy or sell your residence?
- Did you receive a large bonus from your employer?
- Did you realize large capitals gains?
- Did you begin collecting social security benefits or retire?
Taking control of your tax situation earlier in the year rather than later or not at all can help relieve the stress of a surprise tax bill next winter.
Contact your MDTaxes CPA to schedule a mid-year planning meeting to obtain their advice on options and to discuss the next steps to consider.
May through October is commonly known as “Wedding Season” with July and August generally being the peak months for weddings. If you, or perhaps one of your children, tied the knot this year, here are a few items to add to your checklist before the end of the year:
- If you or your spouse changed your name, then contact the Social Security Administration (SSA) to notify them of the name change. The name on the tax return should match the records of SSA. When changing your name, file Form SS-5, Application for a Social Security Card. The new card will have your updated name, but your Social Security number will not change. Once you have your new card, you should update your employer and financial institutions that will be issuing you tax documents at year-end. Also update your driver’s license and passport with your new information.
- If both spouses will work – we generally advise not to change your W-4 to married but leave your W-4 claiming taxes withheld as single. Tax withholding tables do not correctly account for 2 wage earners in a family when claiming taxes to be withheld as married, and often as a result of claiming married on your W-4, newlyweds may be hit with an unexpected tax bill when filing their first joint tax return. Communicate your change in marital status with your tax preparer so they can work through a tax projection accounting for both spouses’ salaries and withheld taxes. For Newlyweds that currently do not work with a tax preparer, now is a great time to seek one out together.
- If you moved to a new location, you should notify the IRS of your new address by completing and submitting IRS Form 8822, Change of Address.
- If you sell one or two homes when you move into a new residence together, be sure to understand the tax rules pertaining to your specific situation and the allowed capital gain exclusion of $250K/$500K depending on which spouse lived in which house and when they may have resided there.
- When you are married, it is generally beneficial to file jointly. However, married taxpayers do have the option of filing separately, and they may file separately for various reasons, and not always for tax reasons. The first year you are married, it may be worth your time to prepare drafts of your tax returns as both married filing jointly and married filing separately to see if there is a tax benefit to filing separately.
- Will only one spouse be working? If so, don’t forget retirement planning for the non-working spouse. A spousal IRA contribution can be made for the non-working spouse.
- Newly married taxpayers should review their life insurance and 401k plan beneficiaries, as well as other HR benefits to modify as needed in order to update for their new spouse.
- No matter when you get married in the year, if you are married on December 31, you are considered married the entire year for tax filing purposes.
With so many people relying on the internet to obtain or provide personal and financial information, it’s often a “guess” for individuals trying to determine what emails that are received are real and which may be phishing scams.
For IRS tax issues and correspondences, the first step in notification from the IRS will be a letter in the mail. The IRS doesn’t initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information.
To help taxpayers be on the alert for phishing scams, the IRS has published on their website information to clarify that the IRS will never:
- Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail you a bill if you owe any taxes.
- Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
- Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
- Ask for credit or debit card numbers over the phone.
Additional IRS efforts to protect taxpayers:
- IRS recently announced that revenue officers will not visit taxpayers unannounced (except for limited situations such as summonses and subpoenas). Taxpayers’ initial contact from IRS revenue officers will be via an appointment letter, known as a 725-B letter. For security reasons, when taxpayers are visited by an IRS revenue officer, two forms of ID should be provided by the IRS agent:
- An IRS-issued credential noted as “a pocket commission.”
- An HSPD-12 card, a form of ID for federal employees.
- The IRS lists on their website the “Dirty Dozen” which represent “the worst of the worst tax scams” according to the IRS website. Compiled annually, the Dirty Dozen lists a variety of common scams that taxpayers may encounter anytime but many of these schemes peak during filing season as people prepare their returns or hire someone to help with their taxes. Don’t fall prey.
- Recently, the IRS warned taxpayers to be on the lookout for the most current IRS related mail scam. This fraud scheme involves the fraud artist sending fake mail to taxpayers and stating “in relation to your unclaimed refund”. The fraudulent letter asks for taxpayers to provide sensitive personal information that can lead to ID theft.
- The IRS’s website is also an excellent resource and security tool for taxpayers. Visit the FAQ’s page that summarizes Tax Scams/Consumer Alerts.
Unfortunately, such scams have become too prevalent in our digital society. Taxpayers need to be on high alert to avoid these ongoing threats seeking personal and private information.
Contributing to a retirement plan is one of the best tax shelters available to people during their working years. Contributions made to non-Roth accounts are tax-deductible and grow tax deferred. With the Roth option, you give up a current year tax deduction in exchange for tax-free growth.
Most retirement plans offered by healthcare practices have two components:
- Salary deferrals need to be made through your payroll during the calendar year
- Employer contributions are due by the filing deadline (including extensions) for the practice tax return filed next winter
If your practice offers a 401k plan or a SIMPLE IRA, please take a few minutes to look at a recent pay stub to ensure you are on track to max out the salary deferrals for 2023 as follows:
For 2023, you can contribute up to $22.5k into a 401(k) plan through salary deferrals, up from $20.5k in 2022. Anyone 50 or older by December 31, 2023 can contribute an extra $7,500 into their 401(k) through salary deferrals, for a total annual contribution of $30k. Please note that you don’t need to actually wait until your 50th birthday to be able to start making these catch-up contributions.
SIMPLE’s work just like 401(k) plans, which means it’s up to each employee to fund the bulk of his or her retirement savings account through salary deferrals. For 2023, the maximum contribution into your SIMPLE as salary deferrals is $15.5k. Anyone 50 or older by December 31st can put away an additional $3.5k in 2023, for a total annual salary deferral of $19k.
Now is the Time to Re-Set Your 2023 Salary Deferrals:
Most people won’t be able to max out these tax-advantaged retirement options unless they get on a budget and put away a set amount of money each month. Please note that if you switched jobs or work for more than one employer that offers a 401k or SIMPLE IRA, the total salary deferrals you can make in the aggregate to all the plans this year is capped at $22.5k (or $30k if 50 or older by 12/31/23).
With the summer half over, now’s the time to make sure you’ll max out your salary deferrals for 2023.