By Lisa M. Borrelli, CPA, M.T., Senior Wealth Specialist, Bryn Mawr Capital Management, a subsidiary of WSFS Financial Corporation
For many of us, there is period between mid-February and April 15 known as tax season. We gather our documents, schedule appointments with our Certified Public Account (CPA), or our Enrolled Agent (EA), submit our paperwork, and anxiously await their recommendations. However, this strategy comes with a risk. Submitting paperwork alone may not provide your tax preparer with your full picture.
Below are four commonly missed topics you should make sure you disclose to your tax preparer that may help reduce the risk of costly return errors.
- New Dependents: This one seems obvious, but I have seen many instances where a child was born or adopted, or a sick parent or child moved into the client’s home, and it was not uncovered until after the returns were prepared. In 2023 and 2024, there are no federal personal exemptions (additional tax deductions for each natural person the taxpayer is responsible for), however, there are federal tax credits such as the Child Tax Credit and Dependent Care Credits that you may be eligible for. For older children, parents or siblings that you are financially responsible for, you may be able to change your filing status to head of household or there may be additional state tax benefits you are eligible for. Remember, it’s always better to over-communicate with your CPA.
- Qualified Charitable Distributions (QCDs): Those with Required Minimum Distributions (RMDs) from retirement accounts can distribute up to $100,000 annually from the retirement account directly to an eligible charity for a dollar-for-dollar reduction to the income derived from the RMD. This is a great and widely utilized strategy, however, financial institutions do not report these QCDs on the Forms 1099R that you’ll submit to your tax preparer. If your tax preparer does not specifically ask, the charitable distribution is likely to be overlooked, resulting in additional taxable income for you.
- HSA Contributions: For those who are eligible to contribute, HSAs are a great tool to save for retirement and pay for unforeseen medical expenses. HSA contributions reduce adjusted gross income in the current year and distributions utilized for medical expenses are not subject to income tax. A Form 5498-SA is the appropriate form that will report what was deposited into the plan and can be provided to your tax preparer to confirm the amount contributed.
- New Investments and Accounts: Did you start a new business or open a new bank account? New investments and/or accounts can increase the complexity of income tax returns, especially if your tax preparer does not know about them. A common notice from the IRS is a CP2000. This letter essentially states that the IRS has received income or withholding information with your SSN/TIN that does not match what was filed on the return. A skillful CPA will be able to respond to a CP2000, but making sure to document new investments for your tax preparer will help reduce the risk of something being overlooked.
Filing taxes can be overwhelming, but there is no honest mistake that can’t be undone. However, mistakes can result in costly fees and/or overpaid taxes. Taking the time to communicate early in the process with your tax preparer, and ensuring the information submitted is accurate and complete will save you money, time and reduce stress in the long term.
About the Author – Lisa M. Borrelli, CPA, M.T.
Lisa Borrelli is a Senior Wealth Specialist at Bryn Mawr Capital Management, a subsidiary of WSFS Financial Corporation. In her role, Lisa works with clients on a variety of planning areas such as income tax and liability exposure, business planning, and trust and estate planning. Lisa received her Masters in Taxation (M.T.) from Villanova University and a B.S. in Accounting from Saint Joseph’s University. Lisa can be reached at [email protected].
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