Tax Planning: Now More Important Than Ever

It’s not too late to try and minimize your taxes for 2023. If you haven’t scheduled a tax planning session, now is the best time to do so. Here’s how a tax planning session can potentially help your situation:

• It can make a difference. This is especially true if you have a major event that occurs during the year.
  (Even in uneventful years, external forces like new tax laws can be managed if planned for in advance.)
  • Selling a house? You can avoid taxes if primary residence requirements are met.
  • Starting a business? Choosing the correct entity can lower your taxes every year!
  • Getting ready to retire? Properly balancing the different revenue streams (part-time wages, Social Security benefits, IRA distributions and more) has a huge impact on your tax liability.
• Put yourself in control. Timing is important when it comes to minimizing taxes, and the timing is often in your control. For instance, bundling multiple years of charitable contributions into one year can create an opportunity to itemize deductions. Plus holding investments for longer than one year to get a lower tax rate, and making efficient retirement withdrawals are other examples of prudent tax strategies that you control.
• There are tax planning opportunities for every level of income, not just those at the top of the tax bracket. Tax deductions are available for student loan interest, IRA contributions and other situations even if you claim the standard deduction. Certain tax credits (called refundable credits) will increase your refund even if you don’t owe taxes. Missing any of these tax breaks can unnecessarily increase your taxes.
• The tax landscape is constantly changing. New tax laws are passed almost every year. New laws may mean new tax deductions you can take advantage of. It can also mean that an existing deduction you had been used to taking is no longer available. A tax planning session can help you understand what deductions are and are not available for your particular situation.
• You have help. Tax planning comes down to looking for ways to reduce taxable income, delay a tax bill, increase tax deductions, and take advantage of all available tax credits. The best place to start is to bolster your level of tax knowledge by picking up the phone and making your appointment with Robert J, Kratz at 610-296-2500 for assistance.

This blog provides summary information regarding the subject matter at the time of publishing. Please call our office at 610-296-2500 with any questions on how this information may impact your situation. This material may not be published, rewritten, or redistributed without permission. All rights reserved.

Think twice about automatically paying the amount due on a notice from the IRS.

Our national tax collection agency is not always right!

If you receive a notice from the IRS, do not automatically assume it is correct and submit payment to make it go away. For instance, it’s pretty tough to pay a balance due of $0 on June 31st when June only has 30 days. The message should be clear. Here are some suggestions for how to handle a letter you may receive from the IRS or other taxing authority.

Stay calm.

This is easier said than done, but remember the IRS sends out millions of notices each year. The vast majority of them correct simple oversights or common filing errors.

Open the envelope.

You would be surprised at how often clients are so stressed by receiving a letter from the IRS that they cannot bear to open the envelope. If you fall into this category, try to remember that the first step in making the problem go away is to open the correspondence.

Carefully review.

Review the letter. Try to understand exactly what the IRS thinks needs to be changed and determine whether or not you agree with their findings. Unfortunately, the IRS rarely sends correspondence to correct an oversight in your favor, but it sometimes happens.

Respond timely.

The correspondence received should be very clear about what action the IRS believes you should take and within what time frame. Delays in responses could generate penalties and additional interest payments.

Correct the IRS error.

Once the problem is understood, a clearly written response with copies of documentation will cure most of these IRS correspondence errors. Often the error is due to the inability of the IRS computers to conduct a simple reporting match. Pointing the information out on your tax return might be all it takes to solve the problem.

Certified mail is your friend.

Any responses to the IRS should be sent via certified mail or other means with proof of delivery. This will provide evidence of your timely correspondence. Lost mail can lead to delays, penalties, and additional interest on your tax bill.

Don’t assume it will go away.

Until you receive a definitive answer that the problem has been resolved, assume the IRS still thinks you owe the money. If no correspondence confirming the correction is received, a written follow-up will be required.

Receiving a letter from the IRS is never fun. Please call if you have questions or need assistance.
This blog provides summary information regarding the subject matter at the time of publishing. Please call our office at 610-296-2500 with any questions on how this information may impact your situation. This material may not be published, rewritten, or redistributed without permission. All rights reserved.

Did You Receive a Letter from the IRS to Verify Your Identity?

The IRS has been sending Letter 5071C to various taxpayers.  This letter states that the IRS has received a tax return for year 2022 using your name and social security number.  If you have filed your 2022 tax return, you will need to verify your identification with the IRS before your return will be processed.

The best way to verify your ID with the IRS is online using the website IRS.gov/verifyreturn.
You will need to create an account with the IRS through ID.me.  In order to set up an account, you will need to provide an email address and upload a government ID and selfie to ID.me.

If you cannot set up an account with the IRS, then you will need to call the IRS Taxpayer Protection Program hotline at 800-830-5084 between 7:00 a.m. and 7:00 p.m.

You will need the following information in order to verify your ID.

• The 5071C letter
• Your 2022 Form 1040 tax return
• A prior year Form 1040 tax return
• Supporting documents for each year’s tax return.  (W-2, Form 1099, Schedule C, etc.)

If you cannot verify your ID by using one of these two methods, you will need to contact our office.  We will have a Power of Attorney prepared and forward to you (and your spouse if you filed a joint tax return) for signature.  Once we have an executed Power of Attorney, we will contact the IRS on your behalf and verify your ID.

This blog provides summary information regarding the subject matter at the time of publishing. Please call our office at 610-296-2500 with any questions on how this information may impact your situation. This material may not be published, rewritten, or redistributed without permission. All rights reserved.

Procrastination is easy, especially when it comes to summertime tax planning. Waiting to implement strategies to reduce your 2023 tax obligations could cost you money. Here are some suggestions to help jumpstart your midyear review:

Safeguard your Deductions

Ensure you can take deductions by keeping great records throughout the year. You’ll need proof if you want tax breaks for things like childcare expenses, charitable contributions, gambling losses, vehicle costs and travel expenses. So create a system to keep track of these expenses.

Save more for Retirement

You can save more for retirement in 2023 thanks to inflation increasing annual contribution limits. You still have time to increase the amount you set aside over the remainder of 2023. This year you can deposit up to $22,500 in your 401(k) and $6,500 into your IRA (additional catch-up contributions apply if you’re 50 or older). You can also contribute to both a 401(k) and an IRA, though tax deductibility on IRA contributions may be limited depending on your income.

Be Tax-savvy about School Savings

If you’re setting aside money in a taxable account to pay for your child’s school expenses, you could realize tax savings by opening a 529 education savings account. The sooner you do this, the sooner your earnings will start growing tax-deferred. Your earnings will also generally be tax-free when withdrawals are used for qualified education expenses.

Adjust your Withholdings and Estimated Payments

If you haven’t already, update your withholdings and estimated tax payments to reflect any changes needed since last year. Updates may be in order if you experience a big life event, such as marriage, divorce or a new job. Overpaying your 2023 tax reduces the cash you have on hand throughout the year, and underpaying can lead to penalties and interest.

This blog provides summary information regarding the subject matter at the time of publishing. Please call our office at 610-296-2500 with any questions on how this information may impact your situation. This material may not be published, rewritten, or redistributed without permission. All rights reserved.

The SECURE Act 2.0, passed by Congress in late 2022, features numerous ways for you to save more money in your tax advantaged retirement accounts. Below are several of the bill’s provisions and what they mean for you.

• Money can continue to grow tax deferred. If you turn 72 in 2023 or later, you can keep money in a tax-deferred IRA or 401(k) for another 12 months to help the account continue growing before starting to withdraw funds. This retirement benefit is now available thanks to the required minimum distribution age being raised from age 72 to age 73. The age will increase again from 73 to 75 in 2033.

Action You Should Take: Review your retirement account distribution needs and use this extra time to help make your distributions more tax efficient. For example, if you must earn an additional $10,000 before you hit the next highest tax bracket, consider pulling more taxable income out of your retirement account to take advantage of this lower rate. Or use the extra time to consider converting funds tax-efficiently into a Roth IRA.

• Be aware of auto enrollment. The government wants you to save for retirement, so the new law allows businesses to automatically transfer a greater portion of your paycheck into their retirement plan. The maximum contribution that can now be automatically deferred into your employer’s 401(k) plan increases from 10% to 15%.

Action You Should Take: While saving more for retirement is a great idea, this automatic participation does not account for your particular financial needs. So be aware of the possibility that you will automatically be contributing to your retirement account and independently determine what you can afford to put towards retirement. Make any adjustments if necessary, as you are permitted to opt out of auto enrollment. Remember, you also need to build an emergency fund and pay your bills!

• Take advantage of higher catch-up limits. Starting in 2024, the $1,000 catch-up contribution for IRAs will receive an annual cost-of-living adjustment in increments of $100, while the $7,500 catch-up contribution for 401(k)s will increase to at least $10,000. This higher 401(k) catch-up limit will also be indexed for inflation starting in 2025. The additional catch-up contribution is available if you’re age 50 or older.

Action You Should Take: Review the annual savings limit for your retirement savings account, including the catch-up amount if you are 50 years or older. Then make adjustments to your retirement savings plan as soon as possible to take advantage of the higher savings limits.
This blog provides summary information regarding the subject matter at the time of publishing.

This blog provides summary information regarding the subject matter at the time of publishing. Please call our office at 610-296-2500 with any questions on how this information may impact your situation. This material may not be published, rewritten, or redistributed without permission. All rights reserved