3 Times You Really Need to Call Your CPA

Every year during tax season, we have a handful of clients who get a really unpleasant surprise from Uncle Sam – a tax bill. Sometimes the surprise is moderate – maybe a few hundred bucks owed rather than a refund. Other times it’s downright painful. One client this past season had a surprise tax bill of $24,000! Can you imagine?!

We are always super frustrated when a client has a large, unforeseen tax bill. Not only do we have to deliver the bad news, but quite often the bill could have been prevented or at least projected if only the client had called us first. So since we are dedicating October to tax planning, here are the 3 times you absolutely, positively should call us BEFORE you move ahead with a financial decision:

  1. An early withdrawal OR a rollover from a retirement account. You probably already know that there are penalties for early withdrawals from IRAs and other retirement accounts. But do you know how much the penalty is? Do you know that additional tax is often applied as well? We cannot overemphasize this enough: Your broker or financial advisor is NOT a CPA. We love our brokers just as much as you do, but quite often they give out misleading, or at least incomplete, advice when it comes to withdrawals from retirement accounts. Just think it through: do they know that you hacts_of_kindness_-_phone_a_friendave a rental property, a new kid, a new house? Your tax bill is a combination of all your income and expenses as a taxpayer – there’s no way a broker or advisor can properly advise you about the impact of an early withdrawal. So please, call us first! The client mentioned above who had a $24,000 surprise tax bill relied solely on the advice of their financial advisor. They never thought to call us. That’s just crazy to us!
  2. Payoff of a mortgage. Are you on the way to being debt free? Great! Congrats! It’s always a good time to check with us, though, if you’re going to begin to aggressively pay down your mortgage. Why? Most folks who have a mortgage take advantage of the annual mortgage interest deduction. Removal of that deduction may cost you quite a bit in taxes. Why be surprised in the spring? Call us as soon as you decide you’re going to head down that road and we can tell you what the impact will be.
  3. Debt cancellation. Got cancelled debt? Fantastic (hopefully)! But danger – there’s a tax impact! One quirk of the tax code that’s less known is that cancelled debt is usually taxable. What does that mean? It means that, for the purposes of tax calculation it’s counted as INCOME. Depending on the size of the debt, a cancellation can cost you big in taxes. So imagine the irony: You don’t call us when you have a debt cancelled, so you don’t know you’re going to owe a chunk of change to Uncle Sam, and therefore you do not save for said tax bill. Come April 15th, you ironically end up in debt to IRS because you can’t afford the tax bill. Crazy right?! Don’t let it happen to you!

Team Holly CPA offers complimentary tax planning consultations to clients throughout the year. Yet, every year, less than 10 (10!) of our hundreds of clients take us up on our offer to help plan and project their tax bill. We get it – we don’t want to think about taxes more than we have to, either!

But please: do yourself the favor of at least calling whenever 1 of the 3 situations above applies to you. Oftentimes, we can work together to come up with solutions that will lower or even eliminate your taxes. But we can’t do anything to change the situation after the fact. So call ahead! We’re here to help! 🙂 239.243.0713

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