Year-end tax planning - scheduling appointments with accountant

 Now is a good time to begin year-end tax planning.  As we move into the 4th quarter of 2026, it makes sense to review income and expenses along with making the necessary projections of income and expenses to determine the year's tax liability.

A series of appointments before the end of the year with one's accountant is vital to stay on top of one's tax situation.  This is extremely important if one owns and operates a business, particularly one that may have inconsistent revenue. It is also important if one's financial situation has changed dramatically for previous years.  This would include the receipt of retirement distributions, lump sum received from social security, an inheritance, etc.  Perhaps one's personal situation has changed (i.e. newly married, death of spouse, divorce, newborn child or adoption, etc). Thus, these changes warrant an analysis before year-end.

It is also important to keep in mind that as of this writing, there are 2 quarters remaining in 2026 to make estimated tax payments.  These opportunities are available if it is necessary for one to make estimated payments in order to pay the proper amount of tax into the government.   LFC can help with year-end planning and tax payment calculations.  Use the Contact Us and Set Appointments features on this blog to contact the office.

Records Retention

The IRS publishes guidelines on how long to keep accounting records.  These are records such as income, deductions, or credits taken on a tax return.  The IRS defines a period of time ('period of limitations') for holding records as the time for which one can amend a return or the IRS can impose more taxes on the taxpayer.

The time periods for income tax returns include:

• 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for a credit or refund after you file your return.
• 7 years if you file a claim for a loss from a worthless securities or bad debt deduction.
• 6 years if you did not report income you should have reported, and it is more than 25% of the gross income shown on a return.
• Keep records indefinitely if you did not file a return.
• Keep records indefinitely if you filed a fraudulent return.

There are other things to consider based on the nature of the records:

• Property records - keep until year property is disposed. 
• Healthcare insurance - if you claimed the premium tax credit, keep records for as long as you received advanced credit payments through the Health Insurance Marketplace and premiums paid. 
• Business records - if you have employees, employment tax records should be kept for 4 years after the tax becomes due or is paid, whichever is later.

You will find IRS information here and here for clarification.

Quickbooks Payroll

Within the Quickbooks Online or Desktop software is a payroll feature that provides quality payroll processing services.  This feature can be a cost-effective alternative to 3rd party processors.

Quickbooks Payroll allows small business owners to:

• Produce payroll checks at any frequency (weekly, bi-weekly, or monthly)
• Submit direct deposit
• Make payroll tax payments
• File quarterly 941 reports
• File state quarterly reports 
• Accommodate any other payroll tax liability (garnishments, retirement contributions, etc)

Quickbooks payroll will also handle the W2s at year-end.

Quickbooks Online software has the feature as part of the online accounting software.  Once it is turned on, one can begin processing payroll after set-up.  Quickbooks Online also has a stand-alone online version of payroll.  If a business needs payroll, but not the full accounting package, Quickbooks online payroll will accommodate these busiensses.

The payroll tool from Quickbooks is a  hands-on feature.  Business owners are in control of their processing. 

LFC can help businesses with their payroll needs.  Contact the LFC office from the Contact Us feature on this blog or set up an appointment. 

Deductions vs. Credits

In order to understand individual income taxes, it is important to have a clear understanding of deductions and credits.  As one works to take advantage of deductions and credits to reduce one's tax liability, it is important to know how each impacts the amount of tax one will owe.  

Explaining deductions & credits:

Deductions

Deductions can be in the form of adjustments or itemized deductions.  Examples of deductions include:

Schedule 1 Deductions

• IRA Contributions
• SEP IRA Contributions - Small Business Retirement Plans
• Educator Expenses
• Health Savings Account Contributions
• Self-Employed Health Insurance Premiums
• Student Loan Interest Deduction

Schedule 1-A Deductions

• Qualified Tips Received
• Qualified Overtime Received
• Enhanced Deduction for Seniors

Form 8895 Deduction

• Qualified Business Deduction for Small Businesses

Itemized Deductions (used when greater than the standard deduction based on filing status)

• Medical Expenses (in excess of 7.5% of Adjusted Gross Income)
• State and Local Taxes (SALT) - up to $40,400 (2026)
• Mortgage Interest
• Charitable Contributions

All of these categories of tax deductions provide significant savings to taxpayers.  Here is an example of the tax savings from a deductible expense:

Assuming a taxpayer is in the 22% tax bracket (based on one's taxable income). The taxpayer makes a deductible IRA contribution for the year.  His savings would be:

                                       $8000    IRA Deduction

                                            .22    Marginal tax rate

                                      ______

                                       $1760   Tax Savings

Total savings from qualifying deductions depends on an individual taxpayer's marginal tax bracket.

Credits

Credits reduce one's tax liability on a dollar-for-dollar basis.  This means the amount of the credit is the total tax savings experienced by the taxpayer.  It is not contingent of marginal tax rates.

Types of Credits

• Non-refundable
• Refundable

Non-refundable credits do not reduce one's tax liability below $0.  Refundable credits can reduce a taxpayer's liability to $0 and any excess credit remaining can be received by the taxpayer as part of a refund.

Examples of credits include:

• Child and dependent care credit
• Child care credit
• Education credits
• Adoption credit
• Earned income credit

Here is an example of how a credit would impact a taxpayer's tax liability:

                                 Taxes owed before credits       $4000

                                  Education credit                       2500

                                                                                   _____

                                 Total taxes owed                       1500

The credit reduced the taxes owed.

Understanding how deductions and credits work are an important part of tax planning.  Contact LFC for additional information or help with your tax planning and preparation needs.

Are we double taxed?

It is interesting to hear from taxpayers when a tax is imposed, particularly when it is the result of a gain on investment or sale of a business, that this represents double taxation. This concept is the result of thinking that since income earned had already been taxed before (i.e. wages or salary earned that had been subject to income tax and social security tax), that income should not be taxed again.  But this is not what is happening.

Explanations:

When income is earned through salaries or wages, it is taxed when a tax return is filed.  It will be subject to  tax withholding (income taxes and social security taxes), so a taxpayer is using after-tax income to pay for personal expenses or investing.

If after-tax income is used for investments, and these investments experience capital appreciation, the growth on this investment is taxable if it is recognized (the investment is sold).  The growth on the investment is new income (a new event) and it is taxed (at capital gain rates), not the original investment. The same is true with the sale of a business:  the growth of the business is taxed, not the original investment.

The receipt of social security benefits also confuses people.  One should look at social security taxes that are withheld from paychecks similarly to 401(k) contributions.  These funds are taken out of paychecks, along with an employer match, and benefits are received at retirement.  There is no double taxation because the social security benefits are a new event/new income that was funded by the social security taxes taken out of a person's paycheck over their working life.

It should be understood that events cause taxation.  Earning salaries and wages produces income taxation and the sale of assets creates capital gain taxes.  These are different events and have their own tax consequences.

For more clarity on taxes for individuals and businesses, contact LFC through the Contact Us feature on this blog.