4 Questions to Ask Your Accountant Before Tax Season

Personal finance experts share the top four questions you need to ask your tax accountant before the year ends.

Tax season may still feel like ages away, but the calendar year ends in just three months. What you do in this final quarter could determine the size of your tax bill next April. The problem is, most of us just want to get the entire process done and over with, so we fail to pay attention to potential cost-saving details. But it's imperative to get more savvy and ask the right questions. Seemingly small things, such as keeping receipts and planning charitable giving, can make a huge impact on your adjusted gross income, the dollar amount used to calculate just how much you'll pay in taxes.

Ahead, personal finance coach Dawnette Palmore and tax expert Hannah Cole share the top four money-saving questions you absolutely must ask your accountant before tax season ends. Thankfully, you still have time to ensure that you pay only what you owe, and not a dime more.

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"What is the best way to get my documents to you?"

Hannah Cole is both a working artist and the founder of Sunlight Tax, a tax-education and preparation service that specializes in working with creatives and their businesses. She says that now is a good time to take a beat and figure out the system you'll use to get those needed documents to the person preparing your taxes.

"It helps to have a designated spot in your house where you will put your tax documents as they come in in January," Cole says. "Pick the desk drawer/file folder now, and then be religious about putting every tax document in there. Misplaced documents are an avoidable headache." If you don't have a filing cabinet or an electronic system in place, now is a good time to get one. Once you have it on hand, you can start adding any receipts or bills. But it is critically important to think through how you plan to get these miscellaneous items safely to your accountant.

"These documents contain the kind of info an identity thief would love to get their hands on, so make sure the folder is secured with a password or use a third-party app with two-factor authentication like Dropbox," Cole advises. Your preparer may want you to use Google Docs, Quickbooks, Box, or their own secure portal. Whatever that format is, start getting acquainted with it now, so that you can save yourself the headache later.

Also, Cole recommends that freelancers go the extra mile to make sure that their 1099 forms actually make it to them. "Freelancers should also make a list of everywhere they worked in the past calendar year and check in that they have a W9 on file with their correct mailing address," she advises. Getting a 1099 too late can cause costly filing mix-ups.

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"What can I deduct (and do I need receipts)?"

As of today, there are roughly 24 tax deductions and 20 credits available to individuals. If those individuals also work for themselves or work from home, some business deductions may also apply. It is best to ask your accountant early which ones automatically apply to you and which ones could apply to you, if only you kept track of your receipts.

Cole says mileage is a huge deduction that people miss. If you are a freelancer, you are allowed to track your miles to job sites, client meetings, etc. (anything outside a commute that you do for business). Then, you get to take a standard mileage rate set by the government each year that is surprisingly generous. If you drive 100 miles round-trip for a big client meeting, that's a $56 deduction (at the 2021 mileage rate). Over the year, that adds up.

Cole adds that another great deduction for your 2021 taxes is a special deduction for businesses (including freelancers) on business meals. "If you conduct business over meals or drinks, you normally get a deduction for that at 50 percent of what you actually paid," she explains. "But for 2021, Congress doubled this deduction to 100 percent so long as you get the meal from a restaurant. This is meant to give a boost to the ailing restaurant industry during COVID-19. Takeout is OK; just remember to keep the receipt, and document who you met with and for what business purpose," she adds.

There are lots of other deductions for mortgage interest, childcare, and even healthcare costs. Seek advice now to learn which ones are worth the hassle of tracking and deducting.

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"Can making a donation lower my tax bracket?"

Financial wellness coach Dawnette Palmore says that high-net-worth individuals might find that giving is the best way to receive. If you find yourself just a few dollars north of a higher tax bracket, now is the time to ask your accountant if a charitable donation to your favorite nonprofit would be best timed before December 31 or after. She says that donating appreciated stock or giving donated goods (such as furniture, cars, and clothing) to a beloved 501(c)3 tax-exempt organization is often on our minds during the holiday season anyway. Don't be shy to ask your accountant how a contribution will affect your taxes. Having this conversation early can help you know how much to give and when to time the donation.

Also, for those who have made contributions all year long, but are now scrambling to figure out the value of what you've already given, remember that most organizations will send you an official receipt with an estimated value. If you don't have an invoice from the organization itself, credit card and bank statements can work too. But if you've got nothing yet, double back to the organization and request something in writing.

You'll need proof for any cash donations over $250 and any in-kind donations valued over $500. If you're donating an item valued over $5,000, you also need an appraisal—in addition to the proof of payment. Work with your tax accountant now to ensure that your giving plan is win-win.

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"Is it too late to invest in a tax-deferred retirement account?"

Palmore says that investing is often the last thing people are thinking about at tax season. But that's to their detriment. "When people are not paying attention to what they are doing with their money, they spend more than they make and wonder why they don't have any left over to invest for their future," she explains. "Investing in retirement accounts is not only a great tax saving, but you get to watch your money grow."

Tax-Deferred Retirement accounts should be maxed out, if possible. The tricky part is that those maximum contributions change every year, and it is easy to underfund them. The 2021 Thrift Savings Plan and 401k Contribution Limit is $19,500 if you're under age 50, and $26,000 if you're over age 50. By putting money in these accounts, you can lower your adjusted gross income and defer the taxes on these funds until you're ready to withdraw them after retirement.

Cole says that "a lot of people think a 'tax shelter' is something icky or only for the rich. (Yes, there are abusive ones, and those are illegal, but I'm talking about the legal kind.) Tax shelters are a type of savings vehicle that the government sets up as an incentive to get people to set aside money for things that are big and scary [but] are in the interest of the individual and society generally, like health care, education, and retirement."

These tax-sheltered accounts provide a big tax break and help people establish good financial habits that will pay a lifetime of dividends. Before tax season ends, Cole suggests her clients use this SEC calculator to try out different contribution amounts and different interest rates. Just imagining how much your money will grow can help you get excited about an end-of-year tax strategy that forces you to sock away money for a rainy day.

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