Avoid This Biggest Mistake After Filing Taxes

I was one of those kids that loved dumping my books right after the final exam. Many do the same thing when it comes to our taxes. Filed it? Paid it? Let's move on. And then deal with it again next year. But there's a better way! Joining us for Shah Plan-It on April 25, 2023 is Linda Farinola, who is a Certified Financial Planner Professional, Certified Financial Analyst as well as an Enrolled Agent. (Translation-she's really smart!)  We will cover the greatest opportunities and pitfalls right after tax season.

April 25, 2023

Transcript

Neel:
Plan-it for April 25th, 2023. Hope you're enjoying the sun and hope those April showers are setting you up for these may flowers. Aside from sunshine and the N F L draft happening this week, and you know, n b a playoffs coming in, there should be another reason that a lot of you are excited. It's because you're probably done with your taxes.

Most of you, I know some of you, us, are on extension and we never get our taxes filed on time necessarily with the extension. With, with without the extension. But either way, there should be a little bit of a relief for a lot of folks now. I know. And last week we were talking about students and what happens with adult children when they go off to college.

So if I reflect back on my days as a student, right after I was done with the test, I never wanted to see the material again. Especially when I was done with my final exams. Like, I'm like, okay, those books are going away in college. Back in the day when we actually used physical books, we sold them, and I never wanted to know that topic again.

And I feel like that's a mistake that a lot of us make with our taxes. So joining us today is Linda Farran Nola, who is an absolute rockstar. She is a certified financial planner. She's a certified financial analyst. She's an enrolled agent with tax filings. So, just a unique perspective for, from Linda and Linda.

Thanks for joining us. Oh, thank you. 

Linda:
Happy to be here this 

Neel:
morning. Yeah. Excellent. So, I live near Route 18, which is East Brunswick in this whole area, and they're doing a bunch of construction there too. So when you drive and you get stuck in traffic, once you learn lessons and you try to adapt your behavior.

So I've been trying to adapt my behavior. I will avoid route 18 during certain places. Now, we don't like driving while looking in our rear view mirror. We wanna learn from the past. So I'm gonna kick this into, and I'm taking a long time to make this analogy, but. If we relate that to our tax filing and what most folks are going to do right now, cuz they finish their tax filings and you see this every year because you not only give tax advice, but you actually do tax returns.

You actually file tax returns too. There are opportunities and there's also mistakes that a lot of people make during this time of year. So let's talk about one at a time. What is the best opportunity that you see folks taking advantage of? Right after this tax filing deadline, like what's, where do people do things right when they're done with these tax filings?

Linda:
Well, first of all, right after you do your taxes, you know, there's the idea that things are kind of fresh in your mind, good, bad, and or indifferent. But you think about just whether I got money back or whether I have to pay. And then once that's done, you're just tempted to put it away. You don't wanna look at it again.

But this is the time when it's more important because you're in a position where you can actually do something about it. So you should be looking at that return. And in particular, my favorite thing to look at is a year over year comparison. Mm-hmm. Because you think, oh gosh, I owed all this money this year, I hate my account.

You 

Neel:
know? But it could be present company excluded of course. Right? Yeah. Right, right. So,

Linda:
You know, it, you ha when you look at the two year and you say, well, did my income go up? Did my income go down? Did you know what happened to make that happen? Sometimes it's just changes in withholding rates.

Mm-hmm. So what's important to do here is a, take a look at that and it's like, did my withholding change? Why? Maybe you need to increase your withholding. You gotta do it now. It doesn't help you much at the end of the year. The other thing is, you know, should you be paying some estimates? Well, it's important that you pay those estimates on time.

We, I've seen some returns this year where failure to pay timely, meaning pay your estimates or pay your withholding the penalties three, four, $5,000. So granted, those are big tax returns. But you know, that's a lot of money for a, for a penalty. So, it's important to stay on top of it through the year and make sure you're paying in what you should be paying in.

And if your income's gonna change, well, you can make adjustments and revisit the calculation, but it's something you should watch through the year. 

Neel:
That's great. That's great. So, you know, again, you know, I'm big on analogies, right? But it's not like you leave your cardiologist and go straight to the hoggy shop and have a meatball sub.

Like if you, if you do that, then you're probably cramming before each cardiologist appointment. So what you're, what you're basically professing here, or what you're, you're sharing with us is if you've gotta change your withholdings, if you've got estimated payments that you're making, be strategic about it because it's April.

It's April right now, or maybe we're coming into May now. Right. So you've got, the first payment was already due, so Exactly right. So let's just make sure that you kind of, just like we do in investing, like cost average, if you need to just make it a discipline, make it a practice so that you're sort of staying on top of it too.

And, and that way maybe it's off your mind. I mean, I, I've even heard some people, I'm coming back from this conference where they talked about just basically paying their taxes even monthly if they really wanted to. Like you can just set up a cadence from a cash flow perspective. So that you're constantly doing things on a monthly basis.

And that's obviously the payment part of it. Anything that you can share with respect to the tax planning part? So obviously we, we like the idea of, of having paid our taxes, not paying them and having paid them, but we like the idea of saving our taxes a little bit more so from a planning perspective to possibly even reduce those taxes.

Anything that we should be thinking about right after tax filing deadline season, or that's a good time to set us up to, for that thought process of saving taxes. Absolutely. 

Linda:
One is, you know, make sure you're putting away, if you're in a high tax bracket, make sure you're, you're utilizing your retirement plans to the fullest.

You know, they, the 401K contribution limits went up significantly this year. So for someone over 50, you can put away $30,000. That's a, that's a lot of money. So take a look at that. Make sure you're utilizing your employee benefits. Your retirement accounts, your flex spending accounts, your hsa, all of those types of things to really maximize your tax savings.

Neel:
That's great. Yeah. No, keep going. Please. 

Linda:
And also keep in mind that the difference between your federal and your state can be different also. So a lot of times people don't do certain things because they think it's not deductible anymore. Save because of the state and local income tax or healthcare if they have high income, but the federal limits 7.5% of income before you hit any amount of deductibility.

Well, the state could be different. We're here in New Jersey and. A lot of your medical expenses are not pre-taxed for New Jersey. Same with those teachers. Retirement contributions. So they're different for the state. So when you're paying something or receiving something on the other end, you have to make note of that and reflect it in your return.

Neel:
Makes, and, and so that's fantastic, Linda, and, and in addition to that, I'm just gonna add that. These are the rules today. There are proposed regs right now with this new secure Act 2.0, which actually might open up new opportunities, not just for those who are employed, but a lot of our self-employed.

Clients and, and a lot of the folks who basically have been doing certain things up until now, but they're getting to an age where they could do a lot more on the catch up side on the retirement planning side, which has a pretty dramatic tax impact in some cases. So I think that makes, that, makes a huge difference too.

So this is more of like a general question, but observations from this, this tax past tax season as opposed to previous tax seasons, how did it compare? Was it busier? Was it less busy? Was there more ambiguity? Any patterns you're seeing? 

Linda:
Well, from a tax law perspective it was, there wasn't a lot of changes.

So from that respect it was relatively smooth. The biggest thing we saw change, I think is the nu number of accountants leaving the accounting profession. So we had, Quite a few clients come in and say, you know, my accountant retired. It's can you, can you do our returns? And we had to turn a lot of people away because we just didn't have the 

Neel:
manpower.

Yeah. It was just too late. And then they were getting you too late. I think that was a big part of it too. Right. Remember you sharing with me? Right. Because 

Linda:
there's only so much you could work, you can do in a month. Yeah. And especially, you know, you mentioned self-employed individuals, it's even more important for them.

There's, there's so many things they can do with retirement plans, things relating to the, the P T E, which is, an election you make as, as a small business to pay the partners. State income taxes through the business to avoid that 10, $10,000 state local income tax. Mm-hmm. So there, there's so much there.

And so it's really important to come out ahead of time and do your planning through the year. cuz there's, you just can't do it, but either the time runs out or you know, there's, there's deadlines that are missed. So it's important to get in 

Neel:
early. No, that's great. So Linda and I are both, Penn State alums and we're both sports fans.

Smooth, so I Yeah, that's right. Go lions. So I would always use the whole distinction between tax planning and tax filing or compliance. Using that sports analogy is like I. If we're coming up with a game plan when Penn State's about to beat Ohio State, and they're basically coming up with how they're gonna run the ball and how the defense is gonna play either zone or man coverage or all that sort of stuff too, that's tax planning.

That happens before you take the field. That happens before the players even show up. Coaches are coaching, so tax planning is what's happening right now. You are tax planning. You are coming up with an entire strategy. When the game is played and you're back in the locker room and they're, they're interviewing with you, that's tax filing.

The game is over. The scoreboard already reflects what happened. It's too late to go change the outcome at that point. That is tax filing. That's compliance. That's what we just passed on April 15th or April 18th this year. So that's sort of like my distinction between the tax plan versus the tax filing part of it.

You need both. The reality is you need both. Like you do need to make sure that you're compliant with law and you have to make sure you do with the last minute stuff, but you could do a lot more planning. Than you can on a filing perspective, like you can. There's a lot more you can do from a game planning perspective to reduce your taxes, to pay your taxes, et cetera, too.

Absolutely Excellent. Linda, this was fantastic. I'm looking forward to having you on often and more and more and share some of this knowledge. I know we kind of all shift into sort of tax planning and investment advisory mode, but but we'll definitely be shifting into college football mode as well too, coming up soon.

Blue, white. Great. And they will beat Ohio State, by the way, and Michigan. So I, this is it. I'm feeling really good about this year. All right. Okay, Linda, thanks again everybody. Thank you for joining us on Shah Plan-it and we will be back next Tuesday and keep an eye out. We're probably gonna be sharing a webinar.

It's gonna be a recorded webinar on the first quarter, market updates, that will probably not be shared on social media. We'll probably be sharing it privately. So if you're not already on our email newsletter list and you wanna get added on, definitely let us know. But again, Linda, thanks for joining.

I will catch you next time. Thank you, Neel. You got it. All right. Have a good day. Bye.