As we move into April and the tax deadline looms closer, it may be time to evaluate your situation this tax season. It is important to review your tax strategy with a CPA to ensure you are reaping the best tax benefits for your personal and business activities. As April 15th approaches, now is a great time to reflect on how your 2014 tax returns went, and what to think about in the future. Here are a variety of tax issues to consider. CPA Performance First and foremost, are you happy with your CPA? Do you only see them once a year to drop off your tax data? Is that all you need? If not, maybe it’s time to reevaluate your relationship with them. Your CPA needs to be your source of planning opportunities and options, not simply someone who prepares your return at the end of each year. You should feel comfortable with your CPA and reach out to them throughout the year to assist you in making business decisions. Consulting with your CPA before making decisions ensures the best tax treatment. Small Business Issues Every year federal and state taxes seem to get more and more complicated. Are you up to date on the new issues and requirements? Are you up to date on your bookkeeping? Have you taken care of the new health care requirements? Are all your payroll reports filed timely? Have you made the right entity choice for your business? Have you selected a retirement plan for you and your employees? If you answered ‘no’ or ‘I don’t know’ to any of these questions, it is time to see your CPA. Your tax professional can be a great resource to assist you with all these issues. College Age Dependents Do you have children in college? Have you or your CPA considered whether it would be more advantageous to your family to claim, or not claim, your child as a dependent? With the American Opportunity tax credit, which has a maximum credit of $2,500 for the first four years of college, if you don’t qualify to claim the credit yourself, your child may be able to claim the credit. If your personal adjusted gross income is too high ($80,000 to $90,000 for single filers and $160,000 to $180,000 for married filing jointly) then you cannot take the credit. However, if you opt to allow your child to claim the credit, you cannot claim them as a dependent on your personal tax return. Depending on your income levels, you may not even benefit from claiming your college age child as a dependent. The threshold for exemption phase out for 2014 was $254,200 for single filers and $305,050 for married filing jointly. So if you are not benefiting from claiming your child, then allowing them to claim themselves on their individual return may result in tax savings. Remember, the exemption for a dependent child can only be taken once – by either the parent or the child, but not on both returns. Talk with your CPA regarding your specific tax situation to see if there are any overall savings to your family by allowing your child to claim themselves. Estate Tax Obligations With an aging population, many of us have elderly parents and relatives. If you are asked to be an executor for an estate, be sure to do your due diligence. A recent court case held that the executor was personally liable for unpaid estate taxes. In this case distributions were paid out to beneficiaries before all of the estate, gift, or income taxes were paid. If the executor knew (or “constructively knew”) that the estate assets might be insufficient to pay the tax, then the executor can be held personally liable if distributions are made before the taxes are paid. If you agree to be the executor of an estate, be sure to get a professional CPA to assist you. Taxes on investment income You may have noticed you are paying additional taxes due to the 3.8% Medicare surtax on net investment income (NII). This tax was part of the controversial Patient Protection and Affordable Care Act (also known as Obamacare). The 3.8% tax is assessed on the lower of your NII or the amount your modified adjusted gross income exceeds certain thresholds. For tax year 2014 the threshold was $200,000 for unmarried taxpayers, and $250,000 for married filing jointly. Your NII includes interest income, dividend income, capital gains, most royalty and rental property income, and the gains and income from passive business activities. It may be too late for tax year 2014, but you can make some changes now to reduce this tax for 2015. Some strategies include switching your investments to municipal bonds (since tax exempt interest income is not included in NII) or changing to growth stocks instead of dividend paying stock. You can also consider selling stock that is currently showing a capital loss to help offset your other capital gains, and allow you to take an additional $3,000 capital loss per year. Before making any changes to your portfolio, check with your CPA and stock broker. As the busy season begins to wane, it is a good time to reflect on your current tax situation. Is there anything in your personal or business portfolio that is not being addressed? Are there tax savings you aren’t aware of that you could benefit from? The above situations and more require assistance from your tax professional. If you have any questions about these topics or your specific situation, please contact our offices. This article originally appeared in the April issue of the Boerne Business Monthly, which you can read below.