Lower Your Stress for the 2011 Tax Filing Season with These Tips – Listen to Stu’s WNBP Radio Podcast with morning guy Win Damon as the 2 talk about lowering your stress around taxes! Click below!
It’s February and time to prepare for income tax returns. Many taxpayers will find themselves facing unnecessary stress about filing their 2011 taxes. People often treat tax filing as a once-a-year process, when in fact, it should be year round. Proper planning is the springboard to financial success. By folowing a few “stress lowering” tax-filing tips you can get through the myriad of forms and rules without too much anxiety.
PLANNING
Tip #1: Set up a meeting with your qualified tax accountant early in the tax season.
Many people wait until the last minute to organize, ask questions or request a meeting with their tax preparer, often a time when the tax preparer is on deadline for filing returns. To get the most thorough service, ask to meet with your tax professional prior to tax filing season. Ask for an appointment today.
Tip#2: Pay your taxes on time.
Don’t give the IRS any extra incentive to review your particular case, or charge you interest and penalties for filing late. Paying and filing on time doesn’t ensure that you will not be audited but knowing your full tax situation in light of the latest tax code and legislation shows diligence and will not draw any unnecessary attention. A professional tax preparer can help you understand your tax situation fully.
Tip #3: File your taxes on time.
Common belief is that people must pay and file their taxes by April 15. However, the official filing date is October 15. If you continue your tax filing until October 15 you are required to pay an estimate of what you will potentially owe by April 15.
Many times people or businesses who continue their filing are waiting for partnership forms that are mailed out in the spring, or have not yet completed reconciling their year-end finances. A professional tax preparer can ease the stress of filing your return by advising when to continue your tax return as well as providing you with the estimated tax to pay by April 15.
TAKE APPROPRIATE IRA DEDUCTIONS
Tip #4: Deductions save you income tax.
There are still deductions available for you to take on the 2011 return for contributions to IRAs. Please consult the many rules and regulations carefully regarding the type of IRA you should use and the amount of deductibility (again, your tax accountant can help educate you). The maximum Roth IRA contribution for 2011 has risen to $5,000, and if you are older than age 50 you can contribute $6,000. The due date for Roth contributions for the 2011 filing season is April 15, 2012.
ORGANIZE YOUR RECORDS
Tip #5: Poorly organized records waste time.
Unorganized records waste both your time and your tax professional’s time. I recommend scanning or copying individual forms once they come in and placing the original in a folder called “2011 tax filing information.” Once all the year’s tax documents are in and copied, you can mail the originals to your tax accountant.
UNDERSTAND ITEMIZED DEDUCTIONS
Tip #6: Understanding itemized deductions can help you save.
Ensuring that you don’t pay more taxes than necessary is part of sound financial planning. This means you need to have at least a basic understanding of itemized deductions, even if a professional prepares your taxes. Some of the most common allowable expenses include: state and local income taxes, real estate taxes, excise taxes on real estate and boats, mortgage interest, charitable contributions, and medical expenses if they exceed 7.5% of your Adjusted Gross Income. Also please be aware of the items that are deductible if over the 2% threshold such as: IRA fees, certain professional fees, safety deposit box fees, and many unreimbursed business expenses such as: travel, business use of automobile, home office and other such expenses. Contact your professional tax preparer for a complete list of deductions that apply to your situation.
CAPITAL GAINS TAX
Tip #7: Plan ahead for capital gains or losses.
Implications should be a serious consideration for almost every investment made by individuals or small businesses. Certain capital gains and qualified dividends (i.e., adjusted net capital gains) are taxed at 15% or 5% for taxpayers in the 15% or 10% tax brackets. This is far less tax than ordinary income tax rates, which also have brackets of 25%, 28%, 33% and 35%. The IRS considers assets held less than one year to be ordinary income. Assets held longer than one year qualify for the more favorable long-term status or rates. If possible, structure any losses so that they will offset gains, especially if you are in a high tax bracket.
Work with a Trusted Tax Professional
Tip #8: Taxpayers of all types can benefit from hiring a Tax Professional (preferably a CPA or enrolled agent).
A tax professional should be more than a simple tax preparer; they should be a CPA or enrolled agent who can actively analyze and strategize to help you make the right tax planning decisions, both personally and professionally. Your tax advisor should be someone who listens well, looks at you’re your overall tax health and helps you establish a plan to avoid overpayment of taxes. For example, the tax advisor can help you decide the best entity for your small business: what are the tax pros and cons of forming a LLC, S corporation, or a sole proprietorship? Or, a tax advisor can project your future tax liability to help you decide the right time to re-finance your home to pay-off debt; when to donate a car to charity; or how to get deductions for significant medical expenses. The rules and benefits change often so it’s wise to work with someone who understands all the facts and can educate you on how the rules impact your particular case.
NO REFUNDS PLEASE
Tip #9: Refunds costs you money over the long term.
If a 30-year-old who received a $3,600 tax refund simply took that $300 per month they were overpaying and invested in a Roth IRA at 8%, at age 65 they would have accumulated a tax-free account of over $700,000! We pay so much tax – income, excise, sales, tolls and fees – why would you voluntarily pay more when you do not have to?
The IRS is continually looking to add to its coffers and will always try to speed up the rate of tax you pay. Your goal should be to postpone any potential tax or eliminate it completely if possible. The key is to educate yourself and plan for the long term, which will ultimately lead to less stress in your financial life. Don’t let the 1040 get the best of you!
Stuart Steinberg, CPA, MBA has owned a strategic tax planning practice on the North Shore for 23 years. Please feel free to contact him anytime and let Erock Tax take care of you!