When it comes to finances, we might not always go out of our way to tell our CPA when we make big financial decisions. Sometimes it just doesn’t occur to us that the right hand really does need to know what the left hand is doing. But how do you know what things you should tell your CPA? Thankfully, we’ve compiled a handy list to help jog your memory.
Whether you’re selling, trading, or using virtual currency, your CPA needs to be made aware of this. Why? Because the IRS wants to know. Not a surprise, the first question on the 2021 IRS Form 1040 – Individual Income Tax Return asks, “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?” So what’s hot has gotten the IRS’s attention enough to warrant this question. Using virtual currency likely affects your tax bill so you want to have a conversation with your preparer and provide records of your virtual currency activities.
EV or PHEV Purchase
Did you purchase a new electric vehicle (EV) or plug-in hybrid electric vehicle (PHEV)? Whether the dealer’s monetary incentives are enough to buy, or your own internal motivation is enough to go green, you’ll become eligible for a nonrefundable tax credit of up to $7,500 based on the vehicle purchase. Here’s a quick reminder, that a tax credit reduces your tax liability dollar for dollar. So buying one of these vehicles is definitely a fact to share with your tax preparer. They know how to calculate your credit amount and include it on your return. Sorry Tesla model S, model X and model 3 plus GMC Hummer EV buyers you are out of luck, as all these vehicles are no longer eligible for the EV tax credit.
Do you own foreign banking accounts, mutual funds, or other assets? Don’t forget about a home overseas. Having assets in excess of $10,000 at any time during the calendar year likely triggers the need to file a FBAR (Foreign Bank Account Reporting) form. If you are not certain about what you’ll need to file, discuss with your preparer as penalties for not reporting assets are stiff.
Purchasing Second Home or Rental Property
Did you purchase or sell a second home or any rental properties last year? Real estate transactions of either variety are events for which your CPA needs to be aware. Don’t be shy and share the news of your real estate transactions.
Start a Business
If you started a business last year, you’ll need to tell your CPA. Maybe it’s a side gig for extra income; do you have accounting records for this business? If not, now is the time to get organized. Your tax preparer needs to understand if this new venture requires its own tax return or join along on your personal return. If your dreams include starting a business this year, now is a great time to give your CPA a heads up of what’s to come this year. Many start-up ventures have significant start-up expenses which can impact your future tax returns.
Sell a Business
In the same way as starting a business, your CPA needs to be kept informed if you sold or are planning to sell a business this coming year. Major liquidity events such as a business sale could have significant changes to your tax income and liability. Selling your business has its own headache; don’t give yourself a migraine by not roping in your financial advisor and making a solid plan.
Have you moved to a new location? Yep, your CPA needs to know this too. You’ll need to file a change of address form, as tax-related notices could be sent to a former address if you do not. Reduce the risk of lost or undelivered tax-authority notices by keeping your contact address up to date. If you’ve sold your home, your preparer will need to know this as well, as all this information is needed to properly compute any tax amounts due, if any, on your tax return.
Perhaps you’ve temporarily relocated during the pandemic to another state. If you’ve lived in this new state long enough, this can trigger new state income filings and taxes due come April 18th, 2022. Your CPA will need to know what state you reside in currently to correctly calculate your taxes.
Have you quit your job, found yourself unemployed, gotten a big promotion, or even retired? Let your CPA know about your job status change so they can help adjust tax withholdings to meet your new income level and help plan for 2021.
Your CPA is Not a Mindreader
As amazing as they are, CPAs are not mind readers. Unfortunately, neither are you. At Organized Instincts, our seasoned team of daily money managers can help collect all your pertinent records and ensure your CPA is informed of any recent change in your finances. We’re here to make your life easier. Schedule a free consultation today and keep your financial records up to date.