The below is more or less a summary of common themes that popped up with the tax returns I have prepared or reviewed for my clients.
- You will almost always owe taxes if you have RSU vested. 22% is the regular Federal withholding for any RSU vesting. If you have RSUs, you are most likely already at the 32%, 35%, or 37% Federal tax bracket. That alone is already an under-withholding of 10% to 15%. For a $100K of RSU, that's already an additional tax liability of $10K. With a tax liability in the five digits, working with a tax professional is worth investing money in.
- You have to pay ordinary income tax on the discount you get from ESPP. Usually, it's a 15% discount. Nothing is free. You pay this when you sell. No taxable event when you buy ESPP. Most people fail to report this part in the year they sell.
- If you have any stock options, this is the part when I actually will tell you that unless you are adept with the intricacies of how these work, you are better off hiring a tax professional. Don't play smart with this. It can become a VERY costly mistake. I've had a few clients owe taxes the size of a mortgage. Have you noticed the market recently? You risk selling investments low due to your optimism in exercising all those stock options the previous year with no proper tax planning. Now talk about tax liabilities you will have to deal with next year when you do your 2022 tax return.
- Sometimes self-preparation is not worth it. I reviewed a couple of my coaching clients' tax returns. Some have made costly mistakes where we have to amend their return. Amending takes longer to process so you will get your money back much later. Most don't understand how to report the supplemental that goes with their 1099B, so they pay more taxes than they should be.
- Depreciation on a rental is not a "free expense." You'll end up paying that back when you sell.
- You need to have a tracking system like cointracker.io if you'll continue doing crypto. I don't prepare my clients' tax returns if they don't have a tracking system since it's a pain in the butt trying to figure out the gains and losses and just trying to identify from the time you buy to sell. Have you looked at the transaction history and tried dissecting it? Do yourself a favor and sign up for the app. I am not a crypto fan, so I don't invest in it.
- Stay on top of anything you do throughout the year that'll trigger a taxable event, as you will be surprised by your tax bill when tax time comes. Some of the everyday taxable events are RSU vesting, ISO exercise (vest doesn't count), selling stocks/index funds/ETFs (buying doesn't count), selling ESPP (buying doesn't count),
The course, however, won't help you figure out proper tax planning. I emphasize tax planning is MORE critical than tax preparation. By the time you file your taxes, it's too late to do anything. So invest in tax planning, especially if you have company equities. Please don't make the costly mistakes of some of my clients trying to save money by not hiring a tax professional. I offer tax planning sessions throughout the year as part of my financial coaching sessions. Schedule a complimentary chat now.