CPAs at tax time are like Ghostbusters around Halloween—when the need for an expert arises, you know who to call.
What many don’t realize, however, is CPAs aren’t just great resources between January 1 and April 15. Their vast experience dealing with tax codes for all those personal and professional decisions made throughout the year is exactly what makes them helpful financial consultants anytime.
“The problem is people don’t usually want to pay for [year-round consulting],” says Dawn Brolin, CPA and CEO of Powerful Accounting, LLC. “But if they decide to invest money and time into their CPA to straighten out their financial life, that could save them thousands—if not hundreds of thousands of dollars—in the future.”
There are very few life events that won’t affect your taxes, but here are four of the biggies you’ll want to talk over with a CPA before handing them all your tax documents. With a little preparation and strategizing, you might end up owing much less than you’d first expect.
1. Buying or selling a home
Buying or selling a home (or maybe both at the same time) is a big deal. It’s also most likely to happen after Tax Day when contacting your CPA is furthest from your mind. But buying or selling a home may have major tax implications, depending on a variety of factors—things like how long you’ve owned the house and where you plan to live next. And it’s easy to get caught up in other details.
But unlike your realtor or lender who has their own reasons for recommending certain financial strategies, your CPA is purely on your side. They have knowledge of your past finances and may be able to help guide you as you make plans for closing costs or remodels. Plus, their wisdom may also help you decide what type of home you should get—including some options you wouldn’t otherwise consider.
“If you sell your home, you’ll get a $250,000 exclusion, per person,” says Brolin, highlighting one of the reasons it’s good to talk to a CPA before the homebuying process gets too far. If you’re married filing jointly, that means you’ll have a half-million-dollar exclusion on the gain and sale of your home, according to the IRS.
Think of it this way: If you sold a house for $400,000, you’d normally owe capital gains on that sale. With any luck, you made a lot of money! But selling that home, if it was your primary residence, shouldn’t create such a heavy tax burden, so the government gives sellers a break. Rather than taxing them for the full amount they earned on the sale, they allow the homeowner to exclude $250,000 on their taxes, or $500,000 for couples.
2. Renting out a house or room
These days, it seems like everyone’s doing it. They may not be renting out a whole house, but putting a room on Airbnb or a parking space on CurbFlip is about as common as Tupperware parties were in the 1950s. But renting out a house or space doesn’t just mean higher income taxes. A good CPA will tell you there’s more to it than that.
“Number one, there are serious rules about rooms and occupancy tax for people who are renting out property,” says Brolin. “Now, if you rent out a property using a long-term lease, that’s not a taxable transaction. But if folks are coming in for a weekend or a month or whatever, like they might with an Airbnb-type concept, you’ll need to talk to your CPA because you may have occupancy tax and potentially sales tax, depending on your state.”
Brolin, like so many CPAs, is aware that her clients might not talk to her about such income, particularly in advance. Some don’t know what questions to ask, while others are ashamed of needing a little extra income. Other times, it’s a hope that such income might go unreported. But not talking to someone is a mistake. “If you’re not talking to anybody about [rentals],” Brolin says, “you’re already putting yourself in a non-compliant scenario and you’re risking—well, I’d say you’re risking it all.”
3. Having or adopting a child
If you’ve found out your family is growing, there are three kinds of people you don’t want to forget to call:
- Your CPA
Kidding/not kidding. While your CPA likely won’t be the person you’ll consult prior to starting a family, they can help you make financial plans for what’s to come.
For those adopting, be sure to ask your CPA about the adoption credit, as well as the tax credits most parents get for having a child. Just make sure you have their Social Security number figured out before tax time. According to TurboTax’s 2018 Birth of a Child resource, “Failing to report the number for each dependent can trigger a $50 fine and tie up your refund until things are straightened out.”
CPAs can also provide some guidance around childcare, specifically to parents who plan on hiring an extra set of hands to help out at home. “If you hire your nanny or caregiver through an agency, the agency may be the employer and have to take care of all the paperwork,” the TurboTax report states. “But if you’re the employer—and you paid more than $2,100 in 2018—you’re responsible for paying Social Security, Medicare, and unemployment taxes for your caregiver, and reporting the wages to the caregiver and to the IRS on Form W-2.”
The best way to avoid unexpected financial obligations is to talk to a CPA and let them know of your plans—particularly ones that involve other working individuals.
4. Getting married or divorced
Like starting a family, you certainly don’t need your CPA’s permission before tying the knot (or severing it), but it’s best to let them know well before April 15. That way, your CPA has plenty of time to help you get all the right tax forms squared away (like your W-4 tax withholding).
Brolin recommends talking to your CPA before you begin divorce negotiations as well. Your marital status changes which deductions or credits you can receive thereafter—especially when children are involved.
For families familiar with how divorce and taxes worked in the past, the change enacted by the Tax Cuts and Jobs Act may come as a bit of a shock. Prior to the law’s passage in 2018, the parent who was required to pay alimony was able to deduct that alimony amount on their taxes at the end of the year. The person receiving the alimony would record the amount as part of their income and pay taxes on it.
Now, that deduction no longer exists. Instead, the parent paying alimony (likely the one in the higher tax bracket) won’t be able to deduct the payment on their taxes. In addition, they’ll need to pay taxes on the alimony at their present tax rate, which could be as high as 37%.
Knowing that, some individuals might choose to fight for different things besides who gets the dog or the house or the car—things they might not even know to fight for without first talking to a CPA.
On the flip side, couples who plan to marry should also take some time with a CPA. “At any point throughout the year that you get married, you’re either filing tax returns jointly or separately. [Filing separately can present] problems because there are requirements around deductions—itemized deduction versus standard deduction,” says Brolin.
Depending on your spouse’s income, whether they have children, whether they displace you as head of household, or any number of factors, you could also wind up in a different tax bracket. And that’s one wedding gift some couples might want to save up for with a CPA’s guidance.
CPAs aren’t just tax experts
They’re life experts too. And they know every personal and professional decision you make has a price—or maybe even a deduction. Your CPA doesn’t party eight months out of the year, then do all their work in four. They’re available anytime with helpful advice you can’t get anywhere else, personal to you and your family. And that’s a credit you can count on.