Women's Money Wisdom

Episode 215: You Filed Your Taxes. What Comes Next?

• Melissa Joy, CFP® • Season 4 • Episode 215

Share episode

Whether you’ve already filed your taxes or still need to request an extension, Melissa Joy shares her post-tax season tips and tricks. Discover how you can pave the way for a smoother tax season experience and take control of your money in the year ahead. 

Listen and Learn: 

  • Why it’s important to discuss taxes with your financial advisor 
  • Which resources you should use during tax season and after
  • When to consider reviewing and adjusting your tax withholdings

Resources:

  1. How to Extend Your Federal Taxes 
  2. State of Michigan Tax Extension
  3. Tax Aware Investment Strategies Webinar 
  4. Tax Withholding Calculator (IRS)
  5. Tax Withholding – How to Get it Right 
  6. Restricted Stock Taxation 

Links are being provided for information purposes only. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Pearl Planning cannot guarantee that the information herein is accurate, complete, or timely. Pearl Planning makes no warranties with regard to such information or results obtained by its use and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Pearl Planning financial advisors do not render advice on tax matters. You should discuss any tax matters with the appropriate professional.

The previous presentation by PEARL PLANNING was intended for general information purposes only. No portion of the presentation serves as the receipt of, or as a substitute for, personalized investment advice from PEARL PLANNING or any other investment professional of your choosing. Different types of investments involve varying degrees of risk, and it should not be assumed that future performance of any specific investment or investment strategy, or any non-investment related or planning services, discussion or content, will be profitable, be suitable for your portfolio or individual situation, or prove successful. Neither PEARL PLANNING’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if PEARL PLANNING is engaged, or continues to be engaged, to provide investment advisory services. PEARL PLANNING is neither a law firm nor accounting firm, and no portion of its services should be construed as legal or accounting advice. No portion of the video content should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if PEARL PLANNING is engaged, or continues to be engaged, to provide investment advisory services. A copy of PEARL PLANNING’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at https://stephenPearl Planning.com/

Melissa Joy:

Welcome to the Women's Money Wisdom Podcast. I'm Melissa CERTIFIED FINANCIAL PLANNER™️ and the Founder of Pearl Planning. My goal is to help you streamline and organize your finances, navigate big money decisions with confidence and be strategic in order to grow your wealth. As a woman, you work hard for your money and I'm here to help you make the most of it. Now let's get into the show. You've filed your tax returns. Now what do you do next? We want this episode to be actionable, quick, but very relevant and timely, so that you know what you need to do next after you've gotten through this important step. We will have action items for people who have failed to complete their tax returns so far on today it's April 16th action items for those who paid too much or too little and where you can go next to make sure that you are on top of your tax game. Welcome back to the Women's Money Wisdom Podcast here today with Melissa Joy. So we thought today's episode was perfect, because some of you may be mailing off or e-filing your tax returns over the weekend or on Monday, and so now here we are, but this is a perfect time to grab your attention and get a few more things checked off the list.

Melissa Joy:

When it comes to tax season, we find that people that reach out to us often have taxes on their mind, even though we're financial planners and not tax preparers, enrolled agents and CPAs. You know that financial planners are thinking about your taxes when it comes to our advice and so oftentimes, when you just end up pulling out your hair saying taxes are the worst, you're telling us that when you engage with us and we're really trying to help you, so we're thinking about taxes all the time when it comes to your investments, when it comes to your income from your job or the work that you do or your retirement portfolio, and I want you to have the information that I would want to hear myself when it comes to what to do in late April once you have your taxes filed. First of all, if you work with financial professionals that aren't talking to you about your taxes, there really are people out there that do keep taxes in mind. I hear this all the time where people that are financial advisors are only thinking about investment accounts and they're not really putting on that tax hat. In fact, at some financial institutions, they don't even let their advisors talk about taxes, but we think that's really backwards. The way we handle things, and many other people like us, is we wanna see your tax return, we wanna look at it and keep that information in mind, keep your current kind of current tax situation in mind through all of our decisions and thought process when it comes to analyzing and understanding your circumstances and providing you with advice. So I just want you to know that there are alternatives out there and that if you aren't having those tax conversations, either ask your financial professional whether you can, or perhaps look elsewhere. So let's talk about some action items I've gotten broken down into five suggested steps for those of you who are like, okay, I'm eating this up. I really, you know, don't take all day, melissa, but do tell me some things that would be helpful for me in my life. And the first thing I want to take care of is those of you that are just sitting there like I'm listening to this because I did not complete my process for this year, and I get that Some people and especially nowadays, tax professionals are under the gun and documents come later and later, which is natural in some cases, and so you're just sitting there like I haven't filed yet, but if you didn't have a tax professional, you're doing it yourself and you ended up missing the deadline.

Melissa Joy:

Then please make sure you go and file your 4868, which is the United States form for the IRS. You can find it on the IRS website and I'll include that in our show notes to get an extension. With that extension, you also want to look up what is required by your state. We have clients all over the country, but I just had to look up what happens in the state of Michigan because we are located in Michigan. Many of our clients are in Michigan and I had a client reach out and say you know the person I was supposed to reach out to back in January. I didn't do it and so she doesn't have time to get my taxes done before the deadline. And so you know, google is your friend here. It's pretty straightforward advice. I would take your advice straight from the source. So go to the IRS, go to your state, but in the case of the state of Michigan, they want to see your federal extension. So you're the form that you filed federal, that 4868 from the IRS that I'm sharing with you in show notes, and then they will give you an extension to the typical time that extensions can be filed, which is October 15th.

Melissa Joy:

If you're planning to use a professional, make an action plan to reach out to them Now. They have just gotten through a very busy season, one in which many of them work at least double the standard, 40 hours a week, if not more. So give them a couple of days or a couple of weeks, but do reach out. You know, go ahead and schedule your email and have it set to hit send for a week from now and do nudge If they don't get back to you. Find somebody else who will, and do make a game plan for filing your return, because you don't want to be sitting in the same circumstance next October.

Melissa Joy:

But I just wanted you to know how to extend. If you're sitting there thinking, oh my gosh, and you're not alone if you extend, if some of you are listening in and you do have to extend for a variety of circumstances whether there just wasn't time for you to get things done or you didn't have all the information, which is possible depending on what types of returns or what types of income you have that's okay. So you're not alone. Many people end up filing extensions In fact, in my experience, more and more each year. So don't feel like you have a scarlet letter, but do make an action plan for how to get things done.

Melissa Joy:

So another piece of information I want you to be aware of is that tax withholdings, if you are someone who has W-2 income, can be super wonky nowadays. The form kind of changed recently. It's harder to understand and people end up having tax withholdings kind of being okay and then all of a sudden they're way off. So if you just ended up not hitting the target for where you usually are in terms of paying in enough and things like that, I do want you to consider revisiting the withholdings you're doing. If you are a W-2 employee who gets a regular paycheck out of payroll from your employer, I'm going to include links for a tax withholding estimator and that will help you. But I also would recommend having a conversation with the people that are helping you file your taxes if you're working with a professional, because these withholding elections tend to be not spot on nowadays and it's just different than it used to be, and your professional will have some good advice about what you should be doing.

Melissa Joy:

If you're not working with a professional, like I said, there's a tax withholding estimator. I just find that you're not alone if you're ending up surprised Like I thought I'd withheld enough, I did everything the same as I used to and then it's like, oh no surprise, you're way way off. Ok, so make sure you're adjusting where you're withholdings and don't assume like if you got a surprise bill or a surprise giant refund too. Don't assume that your tax preparer is going to have time during tax season to say, oh, here's the perfect amount you should withhold. Do do a follow up if you think that you need to have that discussion, because they may or may not have time to kind of consider your specific options. So I want you to be aware of that. Now I'm going to speak to a group of people who may be a little bit like upset about tax season, those who ended up owing a lot of taxes. You know you really feel like your tax rate is too high.

Melissa Joy:

Here's what you may need to consider if there's not going to be a change in your circumstances and you're going to have similar income in the following year. First of all, do make estimated payments. If you can figure that out, estimated payments end up being paid in June, september and January. That's not every three months, so it's kind of a head scratcher in terms of times of the year. The other estimated payment would have been made on April 15th, so you could make an estimate.

Melissa Joy:

In some cases, your tax preparer would say you need to pay this much for your federal obligation as well as make the same estimate the same day, and you're like, oh, double whammy, but it's helping you to prepare for next year. So do get information about your estimated payments, and your estimated payments are going to end up being either based on what is going to happen in this current year or based on an estimate from what your tax obligation was in the previous year, so your tax preparer can give you information about the appropriate amount. That would be a safe harbor so that you don't end up with penalties. And then, if you're really sure that you're not going to end up having as high of a tax obligation, you can talk to your tax preparer over the year. So let's say you are expecting a bonus over the summer and then it comes in lower than you expected. Well, you can then adjust your estimates for September and January, or in some cases, your income ends up being lower. You have really good estimates and then you don't even have to make a January payment. It's flexible that way, but you want to make sure you're getting the payments in over time as you go, because the IRS doesn't like you to wait until the next year in April to kind of make that payment. So do make estimates, if that's recommended to you.

Melissa Joy:

Also, again, do that withholding review and if you're receiving as many of our clients are equity and stock compensation, for example in the form of restricted stock units or RSUs, you can actually go in if you're kind of coming in under and make an adjustment to the amount that is being withheld for those. So you could potentially change it from the standard 22% to 37%. Those are the typical numbers for your federal withholding. And double check on the state withholding as well. That's another thing to think about. Another consideration is like maybe your income is the same, but your spouse or partner that you're filing with has different income and that's been going up or down. That can really hit you. So it's important to coordinate not just with your information but with your partners. And if you're a business owner, your income can be all over the place, depending on the year as well, and so do be cognizant of exactly what's going on right now and if you end up just having too much of a tax hit.

Melissa Joy:

The other thing I encourage people to think about is maybe you want to switch if you were making Roth contributions for your retirement plan, where you don't get an immediate tax break but you get a tax break when you take money out to traditional contributions that have more flexibility to get a higher immediate impact in terms of lowering your tax bill. These are just a few of the ideas. I also am going to mention later that you should analyze the tax cost of your investments, because it can vary wildly based on the type of investments that you own. So let's move on and let's talk about what if you got a big, big refund? Well, for some people, this is kind of your emergency reserves.

Melissa Joy:

Use that money for a kind of a buildup of emergency funds, rainy day funds, or else you make bigger payments for things that come up along the way in this time of year and you know, if you were just purely professional who looked at things from purely a textbook perspective, they may be saying no, no, no, that's not good because you could have had that money in your hands and earned interest. But I know that behaviorally, this feels good and feels right for many people, and I'm just fine with that if that's intentionally the way you want to be. But if you're not that way, if you do want to have that cash in your hands and you rather get paid interest, which could be 4% or 5% nowadays in 2024, then I would encourage you to make some adjustments, especially if your income is going to be similar this year, so that you're receiving, you're paying, less in taxes, because you can anticipate that you will have a lower tax obligation, the same as you did this year, next year, and so actually going the opposite direction and lowering your withholdings instead of boosting them could be appropriate for you. And then also you could switch from the opposite of those retirement contributions from traditional to Roth, in that case and additionally, just talk with everybody involved, your tax professionals and or your financial planner, and kind of make a game plan. Maybe there was just a strange reason for this year Now that we have interest rates higher, you can also find that more and more people are itemizing because they may have bought a house after interest rates went higher and then you have a higher propensity of adding your property taxes plus your mortgage interest, and it ends up being more than the standard deduction, which had really been like kind of grabbing a lot more people than typical for the last few years. But we're starting to see itemized situations creep back in more and more for people, so that may be the case too, and you may just have a permanent kind of adjustment to your tax circumstance or situation.

Melissa Joy:

Another thing that I think is very important and sometimes gets missed not every financial planner is thinking about it, but, gosh, I wish they would is there are tax costs associated with your investments that may be embedded, that may not be necessary, so I'm mainly talking about people that end up with taxable investment accounts. So I'm not talking about your IRA or Roth or 401k, but I am talking about your joint accounts or your brokerage accounts where you're trading investments. In these cases, certain investments, for example, etfs, may be inherently more tax efficient than old school mutual funds, and if you're trading a lot, it may be less tax efficient than if you trade less frequently. I'll include some information on how to be tax aware when you invest in our show notes, but I would like you to be aware that you ask your CPA why didn't I owe more this year? And they say well, your 1099 from your investment account came in with a bunch of income or capital gains. Okay, let's think about that. In some cases that might be very appropriate. In other cases there may be options to improve it. Don't jump to conclusions, but do, if you're working with an advisor, bring it up and say hey, you know, my CPA said a lot of my tax liability came from capital gains that came from this account. Is there anything we can do about that to be more tax aware?

Melissa Joy:

I think with a good financial planner, they will talk to you about hey, here's what it came from, here's the circumstance we were in. This is why it's coming up In our case. We end up sometimes you know, we are aware of capital gains as they go, and it'll be a conversation throughout the year of like, we may need more taxes, and here's why I can think of one example this month where I'm needing to raise a significant amount of funds for a tax bill that's coming up for a client because of equity compensation. So they're getting paid a lot of company stock and that just ends up being a bigger tax bill in the hundreds of thousands of dollars. And so I had the discussion when we were talking about raising some money to make that tax payment of. I was able to do a trade that will have this much in capital gains, which, in your case, because you're in a high income, you're going to be at the 20% capital gain bracket most likely, and thus you will have a tax bill for this trade. That's raising the cash for your tax check of this amount of money next year, all things being equal. So speak and work with financial planners that can talk taxes and keep you aware over time and not kind of create surprises for you.

Melissa Joy:

Now, sometimes your tax preparer may think why were there so many losses in your financial advisor's accounts? I will tell you that your tax liability is not always the same as your investment returns, and so do have that conversation translating the tax costs with the investment returns. So in our case, we love to make money for our clients without creating a big tax bill, and we can't do it every day. It just depends on the year, and certainly past performance does not predict future returns. We can't completely control for taxes, but sometimes we have CPAs that are like you know. We really need to think about what the returns were, and we'll talk to both the client and the CPA and say, hey, tax costs were low, yay, the investment costs were different and higher. And these are just hypotheticals. We're not predicting the way things would go. I'm just saying that there can be discrepancies between the way a tax person who really, when they see taxes, they think gains and returns, sees the world versus how a financial planner who's thinking you know how do I avoid taxes while making money, you know if the opportunity presents itself. So those are some you know kind of thoughts. I'll tell you.

Melissa Joy:

What we end up doing with our clients is we receive, whenever our clients are willing to do it, a copy of their tax return. We run it through a piece of software that we use so that we're able to see your taxes and explain it to you in a very straightforward manner where you can see, like, your average tax versus the highest tax bracket you're in. You can see whether you're eligible for Roth contributions versus traditional contributions If you have kids in college, you can see how close you are to eligibility for tax credits and things like that all over the board. Let's say you're a retiree and you need to be thinking about IRMA charges for Medicare. Well, we can tell you how close you are and how much you would end up paying if all things were being equal. Then we use that information from the previous year, so we use the hindsight, the rearview mirror, to be able to run some scenario analysis and considerations for your next year and then we can do analysis on should I do a Roth conversion. And then we can do analysis on should I do a Roth conversion or what if I elected an S-corp, if I'm a business owner, things like that. So that is a really helpful way for us to both have and explain your tax circumstances in a way that's different than your tax preparer. It does not take the place of a tax preparer and we're not giving you advice separate from a CPA or enrolled agent. We're just kind of tax adjacent. But it helps us to be knowledgeable about your circumstance and then it also helps us to plan and advise in consult with your professional for the year in the future.

Melissa Joy:

I really hope that you have some good talking points, some interesting things to chew on and also a couple ideas of things that you might want to consider, things to bring back to the kitchen table at home and or reach out to your financial planner or someone like us to have a follow-up discussion, because this is absolutely the right time of year. If you just went through the last tax season and you're like I don't want to do that again, there's no time like the present to start planning, you're like I don't want to do that again, there's no time like the present to start planning. It certainly doesn't work to wait until you are under the gun to file your taxes for the next year. So take that with a grain of salt and congratulations on checking it off the list. And if you're one of those that had to extend, that's okay. You'll be getting it done soon, we know you can, and have a great week.

Melissa Joy:

Happy April. Thank you for listening to the Women's Money Wisdom Podcast. If you found value in this episode, the best way you can support the podcast is to forward an episode to a friend or leave a review. The best way you can support the podcast is to forward an episode to a friend or leave a review.

People on this episode

Head Shot

Melissa Joy, CFP

Co-host