coordinating-with-cpas-on-tax-projections — tax strategy and optimization

Why Mid-Year Tax Projections Matter

Tax planning done only at year-end leaves money on the table. By December, many strategies are no longer available: retirement contributions may be maxed, Roth conversions cannot be undone, and capital gains have already been realized. A mid-year tax projection with your CPA identifies opportunities while time remains to act.

Effective CPA coordination requires providing complete information at the right times and asking specific questions that drive actionable recommendations. This article covers what to share, when to share it, and what to ask.

Information to Share with Your CPA

Income Documentation

Provide your CPA with current-year income information by category:

W-2 Income:

Year-to-date wages from most recent pay stub
Expected bonus amounts and timing
RSU vesting schedules with current share prices
Stock option exercise plans

Investment Income:

Year-to-date dividends and interest (from brokerage statements)
Realized capital gains and losses (short-term and long-term)
K-1 income estimates from partnerships and S corporations
Mutual fund capital gain distribution estimates (available in November)

Business Income:

Year-to-date profit/loss from Schedule C businesses
Estimated Q3-Q4 business income
Section 199A qualified business income components

Other Income:

Rental property income and expenses
Social Security benefits (if applicable)
Pension or annuity distributions
Required minimum distribution amounts

Deduction and Credit Information

Itemized Deductions:

State and local taxes paid (limited to $10,000 deduction)
Mortgage interest (year-to-date from lender statement)
Charitable contributions made and planned
Medical expenses (if potentially exceeding 7.5% of AGI)

Above-the-Line Deductions:

Traditional IRA contributions (if eligible)
HSA contributions (limit: $4,150 single, $8,300 family for 2024)
Self-employed health insurance premiums
Student loan interest paid

Credits:

Child tax credit eligibility
Education credits (American Opportunity, Lifetime Learning)
Energy credits from home improvements or EV purchases
Foreign tax credit from international investments

Life Events and Changes

Alert your CPA to any significant changes:

Marriage, divorce, or birth of children
Sale of primary residence or rental property
Business entity formation or dissolution
Inheritance received
State residency changes
Retirement or job change

Timing: When to Engage Your CPA

Q2 Review (May-June)

Purpose: Establish baseline projection using Q1 actual data and full-year estimates.

Actions: Identify whether you are trending toward a higher or lower bracket than expected. Determine if estimated payments need adjustment.

Deliverable from CPA: Preliminary tax projection showing estimated total tax, effective rate, and key variables that could change the outcome.

Q3 Update (September-October)

Purpose: Refine projection with 8-9 months of actual data. This is the critical planning window.

Actions: Evaluate Roth conversion opportunities, tax-loss harvesting needs, charitable contribution bunching, retirement contribution acceleration.

Deliverable from CPA: Updated projection with specific recommendations and dollar amounts. List of action items with deadlines.

Q4 Implementation (November-December)

Purpose: Execute strategies before year-end deadlines.

Actions: Complete Roth conversions by December 31. Harvest tax losses by December 31. Make charitable contributions by December 31. Accelerate or defer income/deductions as appropriate.

Deliverable from CPA: Confirmation that strategies are implemented correctly. Final estimated payment calculation for January 15.

Key Questions to Ask Before Year-End

Bracket Management Questions

Question 1: What is my projected marginal tax bracket, and how much room remains before the next bracket?

Why it matters: Knowing you have $15,000 of room in the 24% bracket before hitting 32% enables strategic Roth conversions up to that threshold.

Example: Your CPA projects $180,000 AGI (married filing jointly). The 24% bracket extends to $201,050. You have $21,050 of room for Roth conversion at 24%.

Question 2: Am I near any phaseout thresholds that could create unusually high effective rates?

Why it matters: Certain income levels trigger phaseouts that create marginal rates exceeding the stated bracket rate.

Key thresholds for 2024:

Child tax credit phaseout: $400,000 MFJ ($200,000 single)
0% long-term capital gains: $94,050 MFJ ($47,025 single)
Net Investment Income Tax: $250,000 MFJ ($200,000 single)
Medicare premium surcharges (IRMAA): $206,000 MFJ ($103,000 single)

Question 3: Should I accelerate income into this year or defer it to next year?

Why it matters: If this year's bracket is lower than expected next year (job promotion, business sale), pulling income forward saves tax.

Capital Gains Questions

Question 4: What is my net capital gain or loss position year-to-date?

Why it matters: If you have $30,000 in realized gains, harvesting $30,000 in losses eliminates the tax. If you have excess losses, realizing gains up to the loss amount is tax-free.

Question 5: Do I have carryforward losses from prior years?

Why it matters: Prior-year capital loss carryforwards offset current gains dollar-for-dollar. You may have forgotten about a $50,000 loss from 2022 that makes a 2024 sale effectively tax-free.

Question 6: Are any positions approaching long-term holding period status?

Why it matters: Selling a position held 11 months triggers short-term rates (up to 37%). Waiting 31 days converts it to long-term (0%, 15%, or 20% rate).

Retirement and Conversion Questions

Question 7: How much Traditional IRA/401(k) contribution room do I have?

Why it matters: Contributions reduce taxable income dollar-for-dollar. The 2024 limits are $23,000 for 401(k) plus $7,500 catch-up if 50+, and $7,000 for IRA plus $1,000 catch-up.

Question 8: What is the optimal Roth conversion amount this year?

Why it matters: Converting enough to fill lower brackets without spilling into higher brackets optimizes lifetime tax. Your CPA should model specific dollar amounts.

Example calculation: Taxable income before conversion: $180,000 (MFJ). Top of 24% bracket: $201,050. Optimal conversion: $21,050 to fill 24% bracket.

Question 9: Will a Roth conversion this year affect my Medicare premiums in two years?

Why it matters: IRMAA surcharges apply based on income from two years prior. A large 2024 conversion affects 2026 Medicare premiums.

Estimated Payment Questions

Question 10: Am I on track to avoid underpayment penalties?

Why it matters: Safe harbor requires paying the lesser of 90% of current-year tax or 100% of prior-year tax (110% if prior-year AGI exceeded $150,000).

Question 11: Should I make a Q4 estimated payment, or can I increase W-2 withholding?

Why it matters: W-2 withholding is treated as paid evenly throughout the year, avoiding underpayment penalties for earlier quarters. A December withholding increase covers the full year.

Worked Example: Mid-Year Projection Meeting

Situation: Sarah, single filer, provides her CPA with the following in September:

W-2 income through August: $140,000; projected full-year: $210,000
Year-to-date stock dividends: $8,000; projected: $12,000
Realized capital gains: $45,000 (from RSU sales)
Traditional IRA balance: $180,000
Roth IRA balance: $50,000

CPA Analysis:

Projected AGI: $267,000 ($210,000 + $12,000 + $45,000) Marginal bracket: 35% (begins at $243,725 for single filers) Net Investment Income Tax: $3.4% on investment income over $200,000

Key findings:

Sarah is $23,275 into the 35% bracket
She owes 3.8% NIIT on $67,000 of investment income ($2,546)
No room for Roth conversion without increasing 35% bracket exposure

Recommended Actions:

Harvest $45,000 in tax losses to offset RSU gains (saves $6,750 at 15% LTCG rate)
Max 401(k) contribution ($23,000) to reduce AGI to $244,000
Contribute $4,150 to HSA (reduces AGI further to $239,850)
Result: AGI drops below 35% bracket threshold ($243,725)

Tax savings from recommendations:

Capital loss harvesting: $6,750
401(k) deduction: $8,050 (35% x $23,000)
HSA deduction: $1,452 (35% x $4,150)
Total: $16,252

Common Pitfalls in CPA Coordination

Pitfall #1: Incomplete Information

Error: Not providing K-1 estimates because "they always come late."

Consequence: CPA cannot accurately project pass-through income, leading to surprise tax bills or missed planning opportunities.

Prevention: Request K-1 estimates from partnerships/S-corps by October. Most issuers can provide preliminary numbers.

Pitfall #2: Waiting Until Tax Season

Error: First contact with CPA is in February when gathering documents.

Consequence: All year-end deadlines have passed. Roth conversions, tax-loss harvesting, and charitable bunching opportunities are lost.

Prevention: Schedule mid-year projection meeting in September or October. Make it an annual calendar item.

Pitfall #3: Not Closing the Loop

Error: Receiving CPA recommendations but not confirming implementation.

Consequence: Assumed the CPA would execute the Roth conversion, but they were only advising. Opportunity missed.

Prevention: Clarify who is responsible for each action item. Confirm completion before year-end.

CPA Coordination Checklist

Information to Gather Before Meeting:

Year-to-date pay stubs showing wages and withholding
Brokerage statements showing dividends, interest, and realized gains/losses
K-1 estimates from partnerships and S corporations
401(k) and IRA contribution amounts year-to-date
Charitable contribution receipts
Documentation of any major life events

Questions to Answer During Meeting:

What is my projected marginal bracket?
How much room remains before the next bracket?
What is my net capital gain/loss position?
What is the optimal Roth conversion amount?
Am I on track to avoid underpayment penalties?

Post-Meeting Action Items:

Document specific recommendations and dollar amounts
Assign responsibility for each action (you vs CPA vs advisor)
Set deadlines before year-end for each item
Schedule follow-up call to confirm implementation
Request final estimated payment calculation

Effective CPA coordination transforms tax compliance into tax planning. The additional cost of a mid-year projection meeting typically pays for itself many times over through identified savings opportunities.

Coordinating with CPAs on Tax Projections