Full disclosure: 1. I'm not an accountant. I just get to hang out with them, which makes me dangerous to myself and others. 2. This isn't tax advice. It's advice to seek tax advice.
Can we all just take a moment to send our accountant positive vibes? Thank goddess for these folks. They bust their asses reading, interpreting and applying the tax laws for our benefit. They file our taxes. They walk through the fire of dealing with the IRS and other tax authorities. And they help us at the end of the year with tax planning.
If you've never had an year-end tax planning meeting with your accountant it could be because you have a very "easy" tax situation. For example, you're a single, renter who has a salaried job, with no side hustles or dependents. Easy. You don't really need a tax planning meeting because you're paying taxes as you earn your income. You don’t have a lot of variables impacting your tax situation.
Alternatively, you might not have had a year-end tax planning meeting if you didn't know you should be having one.
Who Needs A Year-End Tax Planning Meeting?
Wealthy people who are worried about having a big tax bill because you are wealthy and maybe you sold a bunch of appreciated stock or a commercial building or you inherited a bunch of money or your dad gave you ownership in one of his companies.
Business owners. If you are earning self-employment income or you have a company and the profits pass through to you because it's an s-corp or LLC, you should be speaking with your accountant about your taxes.
You’re new to being self-employed or you started a side hustle this year; earned some cash doing it and you have no idea where you’re at tax-wise. It might be good just to touch base with your accountant. You might find that you’re actually totally fine.
What Is Year-End Tax Planning + Why Do You Need It?
To Know How Much You (Might) Owe
For personal taxes and for most business filings, the tax year is Jan 1 - Dec 31. By the time it's November or December, most of the year has gone by. So, you have most of the data you need to make predictions about what your tax picture will look like come April 15 (or March 15 for some entities).
The main reason you want to have a tax planning meeting is so you can try to predict if you'll owe taxes and how much you'll owe. If you owe more than you anticipated, you’ll have at least a few months to plan for the bill. If you have a tax bill, you can also run different scenarios to see how that impacts how much you owe.
To Do Something About It
There might be some things you can do to reduce your tax bill, like making a contribution to your retirement account, making a charitable donation, making some business purchases or prepaying the state taxes before the end of the year. It’s true that you might end up spending $10 to save $2 in taxes, but it’s good to lay out all your options and analyze them.
How to Have a Year-End Tax Planning Meeting with Your Account?
Step 1: Request a Meeting
Contact your accountant (the person who files your taxes for you) and ask them if you could have a year-end tax planning meeting. You’ll want to have this meeting in November or December, before NYE, for sure.
Below is a general list of items your accountant will most likely need so they can run tax projections for you, but make sure to ask them if there is anything else. Remember, your taxes are unique snowflakes, just like you, aging millennial.
Step 2: Get Your Shit Together
The Business Books
Hopefully you either have a bookkeeper or you’ve been keeping your books all year. If not, you’re going to get caught up so you can have an up-to-date profit and loss statement, balance sheet and cash flow statement.
You want to be able to easily show your accountant the income your business(es) have made, the expenses it’s had and any money owed to you or you owe to any vendors.
If you buy and sell stock or BitCoin or other investments, you’ll want the most recent data on that. How much did you buy it for, how much did you sell it for? If you made a profit, that gets factored into your tax picture. Usually for brokerage accounts and the like, the most recent statement will have all the information you need.
Tuition or school expenses should be compiled. Did you have a significant amount of medical expenses? Did you buy or sell a house or car? Compile it and ask your accountant.
Step 3: Make Projections for the Rest of the Year
Spend some time projecting what your business or self-employed income and expenses will be for the rest of the year. Even though it’s a projection and things may change, it’s a good starting point.
Can You Wait Until January to Have a Tax Planning Meeting?
It’s not the best move. Waiting until the new year is, in the wise words of Blink 182, “a day late and a buck short”.
While you can still make retirement contributions into the next year for last year’s taxes, that’s not the case for other tax strategies. Making charitable contributions or prepaying state taxes will need to be done before the tax year wraps up and the new year begins.