Out with the Old, In with the New (But Not Yet)

With all the discussion surrounding the passage of the new tax law at the end of 2017, it may seem to many taxpayers that everything has changed. While it’s true that the new law does make a number of significant changes that will greatly affect the ways many of us are accustomed to preparing our tax return information--including big changes in mortgage interest deductibility, deducting state and local taxes, most itemized personal deductions, and other changes--it’s important to remember that the return we are about to file is still governed by the “old rules.” The tax return due by April 17, 2018--or later, for those who file extensions--should still incorporate the same deductions, exemptions, and other information that we have used in the past.

With that in mind, here are a few basic tips to keep in mind as you prepare to file your 2017 income tax return. Many of these will probably sound familiar, but as all great athletes know, nothing is more important than practicing good fundamentals.

1. Start early. While it is certainly true that nobody looks forward to thinking about taxes (with the possible exception of your CPA), it’s also generally true that the earlier you start gathering your documentation, the more complete the information you’ll be able to provide to your preparer and the sooner you’ll have the whole experience behind you. Not only that, but the earlier in the tax season you can hand everything over to your preparer, the greater the likelihood that your return will get the best possible attention to detail. Don’t get caught in the end-of-season rush, when your tax preparer is burning the midnight oil, trying to finish the raft of returns that came in at the last minute! 
2. Review last year’s return. As you begin gathering your records, spend some time studying the return you filed for your 2016 taxes. While no one expects you to become a tax expert, having at least a general working knowledge of where various types of information fit on your return will give you a big advantage when it comes to supporting and assessing the efforts of your preparer. For example, if you have self-employment income, it’s helpful to understand how your Schedule C or Schedule E impacts your adjusted gross income (AGI). Also, a good basic understanding of the various moving parts of your current return will come in handy next year, allowing you to gain a quicker grasp of the things that are changed by the new tax law.
3. Organize your documentation--yourself. Having your personal information (Form 1099s, Form W2s, all Social Security numbers for anyone listed on your return, etc.) organized and in your preparer’s hands is just the first step. You should also categorize and organize any expense receipts used to document business or personal deductions and charitable contributions. If possible, you should enter these in a spreadsheet that your preparer can use to quickly plug the numbers into your return. At the very least, you should list the various categories of expenses making up your deductions and provide the totals. It may require a bit of your time to go through your receipts and come up with the numbers, but if you can reduce the number of hours your preparer must spend simply calculating and entering data, you will also be reducing the fee you’ll pay for preparation of your return. You should also have on hand pertinent account statements, mortgage interest statements, and statements of gains and losses on securities transactions, if you have investment accounts (these are reported on Form 1099-B, due to you from your investment firm by February 15). (Note: Your CPA may be like mine and have a tax organizer for you to complete to simplify pulling your information together.)
4. Communicate, communicate, communicate! The more well-informed your preparer, the better for you. Have you had any major life changes--marriage, divorce, birth of a child, death of a family member, job change, business or real estate sale or purchase, receipt of an inheritance, etc.--since you filed your last return? Make sure your preparer knows all about it. If you moved an aging parent into your home or otherwise took responsibility for their care, tell your preparer. In other words, the more familiar your preparer is with any changes in your situation, the better he or she will be able to advise you on filing strategies that could save you money.

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Go to the Bernhardt Wealth Management Blog where this was first published to read this and other blog entries.

About Gordon J. Bernhardt: President and founder of Bernhardt Wealth Management and author of Profiles in Success: Inspiration from Executive Leaders in the Washington D.C. Area, Gordon and his team provide financial planning and wealth management services to affluent individuals, families and business-owners throughout the Washington, D.C. area. Since establishing his firm in 1994, he and his team have been focused on providing high-quality service and independent, unbiased financial advice to help clients make informed decisions about their money. For more information, visit Bernhardt Wealth Management and Profiles in Success.