Why Taxpayers Need Year-Round Tax Check-Ins — Not Just April Prep

Key Takeaways:
  • A quick check-in with your tax advisor during the year can help prevent costly surprises when it’s time to file.
  • Business changes, investment gains and family updates can all affect your tax picture sooner than you may expect.
  • Tax planning works best when it happens before December, not after the documents start arriving.

 

Every tax season is different. Tax laws change, tax brackets change and taxpayers’ circumstances often change. All those changes occur throughout the year, which is why taxpayers need to include a regular check-in with their tax advisors along the way. Just a phone call, an email or even a text would do. It may take only a few minutes, but it can help you avoid major stress.

This year, the surprises were often good. The changes in the “One Big Beautiful Bill” (OBBB) tax legislation were generally beneficial for business owners. For example, the Qualified Business Income deduction was made permanent, and 100% bonus depreciation was revived and made permanent.

While no major tax legislation is anticipated in 2026; this year is a return to the status quo. And the status quo is that the number one goal of tax advisors during tax season can be summed up in two words: “No surprises.”

You don’t want to be surprised by the amount of taxes you owe, you don’t want to be surprised by the loss of significant tax credits and you don’t want to be surprised at having to file an additional tax return because of a change in your business entity.

That’s what the regular check-ins with your tax advisor are about.

Did your business go through an entity change in June? Tell your tax advisor in June, not the following March. Your tax advisor can guide you on any necessary changes in tax strategy, and prepare you for the different documentation and tax returns you may need to file.

Did you merge a smaller business into your company in July? Tell your tax advisor in July, while there’s plenty of time to prepare for tax season.

Did you sell stock and realize a significant capital gain in September? Tell your tax advisor in September, while you have time to benefit from tax loss harvesting and other strategies to minimize taxes.

Common Areas of Surprise

Following are key issues that impact taxes, often to the surprise of taxpayers:

  • Investments — If you have sold stock and realized a large gain, it is, naturally, subject to capital gains tax if you held the stock longer than one year, or ordinary income tax if you held it for less than one year. But in certain circumstances, you may find that you owe taxes on investments that have appreciated, but which you have not yet sold. That’s because certain mutual funds and ETFs can distribute capital gains when they sell securities in their portfolios for more than their purchase price. The IRS requires funds to distribute net capital gains to shareholders annually.
  • Business entity change — You may have operated your business as a sole proprietorship or an S corporation, depending on its size. But now you have merged in another company and taken on a partner. It could be time to change to a more complex entity structure. If you accomplished this with the help of an attorney, but did not inform your tax advisor, there could be some unwelcome surprises at tax time, such as the need to file an additional tax return you weren’t expecting, resulting in higher preparation costs and or even a missed filing deadline.
  • Child Tax Credit — You have gotten used to that $2,000 child tax credit lowering your taxes for a few years, but now comes the surprise. The credit falls to $500 in the tax year in which your child turns 16. This comes as a shock to many taxpayers who assume the credit is good until their children turn 18.

Generally, the following best practices help keep taxpayers on top of tax season preparation and help them steer clear of surprises:

  • Keep up with estimated tax payments for each quarter of the year. Consult with your tax advisor as to the amounts that should be paid. A good rule of thumb is to set aside 25% to 30% of income for taxes and adjust withholding or estimated taxes if your income changes.
  • Avoid penalties. The IRS penalizes underpayment of taxes. By staying on top of withholding and estimated payments, you can avoid interest and penalties.
  • Maximize deductions and credits. This requires close consultation with your tax advisor. Tax credits, in particular, can make a significant positive impact on your tax bottom line. For instance, a tax credit designed to boost employment in the aerospace sector puts a $5,000 credit in the hands of certain aerospace employees, with similar amounts going to the employer.
  • The Research & Development (R&D) tax credit is back! It never really went away, but accounting rules under the 2017 Tax Cuts and Jobs Act weakened the credit significantly. Those rules have been rewritten, and companies with R&D expenses are back in a position to receive a healthy credit. Careful accounting and expense tracking are essential, though, so have your documentation ready.
  • Beware of the impact life changes can have on your taxes. Births, deaths, divorce, moving, buying a home or selling assets can change your tax situation. Talk to your tax advisor in a timely manner when any of these (or other life changes) occur.
  • If appropriate, run annual tax projections with your tax advisor to anticipate liabilities and adjust strategies as your life situation or your business changes.
  • Remember, filing an extension is not a bad thing, and they do not heighten your risk for an IRS audit. If you need an extension because of missing documentation, an inaccurate 1099 or other reasons, ask your tax advisor to file for an extension for you. It’s simple, will help ensure accurate tax returns, and does not result in any penalties.
  • Ask your tax advisor about any new or changing state tax provisions that may affect you. This year, Kansas enacted a double exemption for a new child in the year the child is born.

Questions?

Staying connected with your tax advisor throughout the year and communicating about changes in your business and personal life that may impact your taxes is the best way to avoid unpleasant surprises during tax season. If you would like to speak to a tax advisor about changes that may affect your taxes, contact Adams Brown.