Now is not the time for clients to let their taxes fall by the wayside: Tax Strategy Scan
Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Here's why clients shouldn't let their taxes fall by the wayside right now
Although the tax-filing deadline has been extended to July 15 because of the coronavirus outbreak, clients may still be better off filing their 2019 returns as soon as possible, according to this article in Motley Fool. By filing early, clients will have more time to plan on how to pay their tax bill, according to the article. Also, those who are expecting a refund can expect IRS to release the money sooner. Taxpayers who saw a big drop in income in 2019 should also file their taxes early, as their stimulus payment will be based on their adjusted gross income. "Filing your taxes means having one less potentially unpleasant task to worry about," according to the article. "So if you knock out your return this weekend, you may lower your stress load at a time when that's an important thing to do."
Effective succession planning can lead to business longevity
Business owners should engage in effective succession planning to ensure a smooth transition for those who will one day take over, according to an expert in Kiplinger. When developing a succession plan, these clients will need to make a number of considerations, including employment agreements and retention of key workers, according to the expert. "A succession plan should also account for tax implications and savings. Owners who are concerned about estate taxes can consider gifting the business prior to retirement to lower the size of their taxable estate."
401(k) mistakes job hoppers make
There are a few 401(k) mistakes that workers should avoid when changing jobs, as these moves trigger taxes and fees that could eat into their retirement savings, according to this article in Yahoo Finance. These mistakes include leaving before they are vested, not making contributions during the waiting period and saving less when they get a lower employer match. Workers should also ensure that they avoid cashing out their old 401(k) assets when they switch jobs and they continue building their nest egg even if their employer has no retirement plan. They are advised to put their retirement savings in the best tax-deferred savings vehicle.
Why paying off a mortgage early may make sense — if your clients can afford it
Clients will be better off paying off their mortgage early rather than investing the money in the stock market, an expert in The Washington Post writes. That's because paying off the debt early means paying less in interest and investing in the stock market can be more risky, the expert explains. "The mortgage interest deduction isn’t as significant as you think."
Top 7 tax deductions and credits that clients often forget
Clients are advised to take advantage of all the tax breaks available to them in order to enhance their savings at tax time, according to this article in Albany Democrat-Herald. Some of the tax credits that many taxpayers fail to claim on their returns include the earned income tax credit, child care credit, American opportunity tax credit and lifetime learning credit, according to the article. Clients also miss frequently out on savings for failing to claim tax deductions for self-employment tax payments, medical expenses, charitable donations and state and local taxes.