Taxes and Financial Planning
Experts say the best window is right now
April 2020 might seem like it’s far away. But local tax experts say it’s not too early to start thinking about filing 2019 taxes. In fact, now might be the best time to start preparing.
“From now until end of year, your CPA has a ton of time to meet and do strategic planning,” said Hardy Foreman, CPA, and partner at Carr, Riggs and Ingram, LLC. “Start planning now, before the end of the year. Utilize their time while they have it.”
Foreman encourages taxpayers to ask their tax professional for a list of the necessary paperwork for tax preparation. When it comes to pulling that information together, the sooner the better, Foreman said. After February, taxpayers run the risk of getting caught in a backlog with their tax professional.
Another reason to consult with a tax professional is to review the tax laws, Foreman said. The tax code was rewritten with significant changes in 2018. What once was applicable might not be now, he said.
One area Foreman cited specifically to consider is charitable giving. The standard deduction for married filing jointly is $24,000. If a taxpayer has mortgage and property deductions, and a planned charitable deduction will not cross that $24,000 threshold, Foreman said the taxpayer might opt to take the standard deduction this year, then double the planned donation next year if it helps to exceed the deduction threshold.
Not saving receipts is another potential pitfall for many taxpayers, especially when it comes to charitable giving.
“All the time, people are giving $200, $400 or $500, and they don’t get receipts,” Foreman said. “When it comes tax time, they have no record of those donations, so they get no benefit from that.”
Owners of rental properties often face similar challenges, he said. Foreman encourages them to open a separate bank account for the rental business and to save all their receipts related to the maintenance and upkeep of their properties.
“Inevitably, people forget something,” he said. “More times than not, it’s to their detriment. Clients with a lot of rental properties don’t keep up with receipts. When they see the CPA, they don’t have all the expenses accounted for, and they miss out.”
Regardless of your business and income, a timely visit with a tax professional can pay dividends, Foreman said.
“Go visit a tax pro,” he said. “Have them look at your past two years and evaluate them. And compile this year’s info within the next three months, so you get your taxes filed early.”
It’s not too early to begin longer-range financial planning either, professionals said. Estate planning can ensure that your assets are protected and distributed as you desire when you die.
As with taxes, estate planning starts with preparation, said Kyle Moore, a partner at Weems, Schimpf, Haines and Moore, APLC, who specializes in estate and long-term-care planning.
“I focus on having a good plan while you are here, planning how those assets you saved are going to take care of you in your old age, and what happens to those assets in death,” Moore said.
Moore advises people to begin by compiling a detailed list of all of their assets. That includes bank accounts, investments, business valuations, insurance policies and more. Once the list is compiled, share a backup copy with a highly trusted individual.
Next comes a power of attorney, Moore said. This document will designate someone to handle the assets in the event the person becomes incapacitated. And a will details how those assets are to be distributed in death.
Moore said he spends time educating people on different types of assets and how they are distributed. For example, funds from life insurance policies or 401(k) retirement plans will be disbursed to beneficiaries designated in the policy, regardless of what a will might stipulate.
He said Louisiana’s community property laws also take some explaining.
“People often don’t understand that in Louisiana, it’s a 50-50 state,” he said. “So they have an equal share of the assets. Just because you have a checking account with just your name on it, it isn’t necessarily a separate asset. It’s all about how you acquired it.”
People also need to understand the inheritance laws regarding children. Community property is inherited by the children if there is no will, Moore said. And Louisiana has forced heirship laws that entitle children under the age of 24 or children of any age who are permanently incapacitated to inherit a portion of their parent’s property.
Older adults whose children are grown and who have accumulated more assets have additional considerations.
“They might want to think about a family limited partnership, especially if they have land holdings,” Foreman said. “They need to have their children as members of the limited partnership.”
Business owners should get a business valuation done to set the business’s worth. Succession can include gifting ownership of the company to children within the constraints of the gift tax laws, Foreman said.
As with tax preparation, estate planning should start with professional counsel, Foreman said.
“See an estate planning attorney as quickly as possible,” he said. “Make sure your will is current, that succession plans are in place and being executed, and take a good inventory of your assets so you know what you are dealing with.”
Even after a power of attorney and will are completed, people need to review their assets and estate plans regularly. Moore recommends doing it during an annual visit with a CPA for tax preparation. The goal is to make the process easier for everyone involved, Moore said.
“People who have never been through the process, or cared for someone who is incapacitated, or been an executor, they don’t have an appreciation of how some planning can make things easier,” he said. “It makes the transition better for the heirs.”