Leading up to April 15's filing deadline, most accountants are pretty busy. This is crunch time for a bulk of America's tax preparation work, so we thought now might be an opportune moment to check in with the head of IFA Taxes, John Dahlin.
After all, he is a CPA with more than a decade of experience working on behalf of a wide range of individual and business clients. His consulting background includes partnering with estate attorneys and other planning professionals to help draw up comprehensive tax plans. Below is a recent Q&A session with Dahlin aimed at providing some tips for filers ahead of their preparation work as IRS deadlines approach in coming months.
Q: What are you telling people to watch out for in terms of being prepared to work with you ahead of the April 15 filing deadline?
Dahlin: Some mistakes can be avoided by simply making sure you've got all of the right forms gathered and organized. Even a fairly basic filing situation requires more than just a W-2 form. There are always more questions that need to be asked to make sure that every possibility is addressed to maximize refunds and minimize tax liabilities.
Q: Could you provide some examples?
Dahlin: An issue I always try to make my clients aware of early in the process is that they might not get full 1099 investment statements from their custodians until later in the first quarter. They should also realize these forms are often amended with corrected information and reissued. So, while it's best to get all of your original statements into us sooner rather than later, you've also got to keep watching for any amended tax-related documents that might be coming, too.
Q: What should small business owners pay special attention to this time of year?
Dahlin: Their filing deadlines are coming up a lot sooner than those for individuals. If you're filing as an S-corp or partnership, for example, your deadline is March 15. But it's important for business owners to realize that these returns can also get extended, just like with their personal tax returns.
The point is -- they're not necessarily facing a hard tax deadline. A lot of people will seek extensions, especially if a company's net income flows into their personal tax situations. It's still important for business owners to get their tax information together, but the process of planning and fully developing their tax strategies is probably going to be more of a concern at this stage.
Q: What types of businesses are most impacted by recent changes to the U.S. tax code?
Dahlin: Mostly different types of "pass-through" businesses. This would include S-corporations and entities taxed as a partnership -- including general partnerships, LLCs and limited partnerships. Also, sole-proprietorships will be impacted.
Q: What do you mean by "pass-through" businesses?
Dahlin: Almost any business which isn't paying income taxes on their business returns. In other words, business owners who are reporting income from their companies as part of their own personal returns.
Q: Why would someone in that situation be facing different tax treatment?
A: In the latest changes to the U.S. tax code, the 2017 Tax Cut & Jobs Act, pass-through business owners in general can deduct up to 20% from their qualified business income. (That excludes C-corps, however.) The new law has also expanded deductions for capital equipment for a variety of different businesses, not just pass-throughs. The corporate tax rate for C-corps has also been lowered from 35% to 21%.
Q: Do only families with tens of millions of dollars need to worry about estate tax planning?
Dahlin: No, in order to avoid probate, you need to make sure to figure out how best to protect any assets that you own. You also need to set up proper designations and, in some cases, trusts to make sure your assets go to the right parties. People tend to overlook the viability of trusts, but they can be extremely valuable in smoothing the passing of assets between different generations. Establishing a trust is about more than just eliminating the risks posed by estate and other various taxes.
Q: What are the biggest changes individual are facing?
Dahlin: The major changes can be referenced in the FAQ section of IFAtaxes.com. But to summarize, one of the biggest reforms is the new act's $10,000 annual cap for deductions on state and local taxes, or SALT. Also, individual tax brackets have changed, leading to the potential in some cases for increased tax savings.
Another alteration in the tax code that individual taxpayers are asking about is elimination of the 2% miscellaneous itemized deduction. This means that expenses like tax preparation fees, financial advisor fees and employee business deductions for unreimbursed employee expenses aren't going to be allowed to be itemized on individual federal tax forms. Tax brackets have also been altered.
Q: How long does it take IFA Taxes to finish a typical client's IRS filings?
Dahlin: I'm telling people that they need to have their information to us by March 25, or they risk having to file extensions. It doesn't mean we're not going to be able to figure out to the best of our abilities what they might owe. It just means we might not be able to realistically be able to finalize their returns until all of their forms and statements are complete.