One Big Tax Mistake

one big tax mistakeHere we are at the end of tax season again.  Like every year, American taxpayers are attempting to get their tax returns done last minute in an attempt to avoid extending.

First you have your W2’s that show up sometime in early February.  Then, you wait for your 1099’s to arrive sometime in late-February to early-March.  Your financial advisor sends you an email, letting you know that there is possibility that your 1099’s will be amended (due to late reporting on the part of investment companies around the country), so you wait till the first week of April, hoping you’ll get that last document in the mail.

You get the good news from your financial advisor – there isn’t going to be an amended 1099 this year, so you hand the remaining documents over to your CPA (who proceeds to freak out, considering they only have two weeks left to finish your return), and all of a sudden, a K-1 shows up in your mailbox.

Like the infamous 5498 tax document, which rarely shows up till June, proving that you’ve rolled over assets from a prior IRA to a new IRA, the K-1 doesn’t have to show up by tax day (April 15th this year).  So, you call your CPA and tell them you’re holding this K-1 in your hand and don’t know whether they need it and want to know what to do with it.

Of course, you need this form for your tax return, so the inevitable happens.  For the above-average investor with an above-average portfolio, you likely have a couple IRA’s, maybe a Roth or two, a taxable brokerage account, maybe a couple trust accounts, and with all that money comes more problems (I guess it’s one of the many caveats to financial success).  What’s inevitable?  Extending your tax return – and here’s where the big mistakes get made.

Aside from the little mistakes, like:

  • Contributing to your SEP IRA (if you’re a business owner) before April 15th
  • If your employer doesn’t offer a retirement plan, you can add money to your Traditional IRA for a little tax deduction as long as you do so before April 15th
  • Maybe you have a 401k, 403b or Deferred Comp plan, but you still want some “tax-free” growth – if this is the case you need to make your Roth IRA contribution by April 15th as well.
  • Or maybe someone told you in the past that you “make too much money” to contribute to a Roth IRA.  The truth is, while you may be above the IRS income limitation, there is still a good chance we can get you into a Roth IRA.  We just have to jump through a few tax hoops on our side of the table.

Missing these deadlines can surely be annoying, thorn-in-the-side mistakes, but The Big One… the mistake I see investors make, especially if they don’t work with a tax professional and “go it alone” when extending their taxes – is not paying the estimated tax owed when you extend.

That’s right.  There is a huge misconception among well intentioned taxpayers, that when you extend your taxes, that you can just “pay them later.”  Sure, when you extend, you don’t have to file your tax return till October 15th, but guess what?  The IRS still wants their money – and they want it now!

So, as you’re finishing up this last couple days of tax season, don’t forget to contribute to your SEP IRA’s, Traditional IRA’s, and Roth IRA’s.  If you’re in the category of people who “make too much money to contribute to a Roth IRA,” be sure to contact us so that we can explain the strategy to getting around this pesky tax law.  Above all, if you extend your tax return this year, don’t forget to pay your taxes!  Remember, you can extend the filing of your return, but you’ve still gotta’ pay today!

If you or someone you know has any questions regarding portfolio management, estate planning, or financial planning, please contact me and I’d be happy to confidentially discuss your/their personal situation further.

Warmest regards,

Adam D. Koos, CFP®

P.S.  If you think this type of information would be beneficial to anyone you know, please forward and share this communication with them.

* Adam Koos, CFP® is a CERTIFIED FINANCIAL PLANNERTM  Professional, as well as founder & president of Libertas Wealth Management Group, Inc., a financial planning and portfolio management firm, located in Columbus, Ohio.

Securities offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss.

Adam Koos
Adam Koos
Adam Koos, CFP® is an award-winning financial planner and owner of Libertas Wealth Management Group, Inc., located in Dublin, Ohio. Over the past 10+ years, his common sense financial planning advice and trademarked “Defense First” portfolio management has caught the eyes of both investors, as well as the media.