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TAX-SAVINGS STRATEGIES
If the tax battle that begins every January seems hopeless to you, don't despair. The following information should help you in your fight against the dreaded 1040.
1. OVERCOME YOUR FEAR OF FILING
As the tax season approaches each year the presses are filled with stories of famous people getting caught cheating on their taxes. In addition to that, the tax law itself can be very complicated. If you have a special situation in your tax profile, chances are you will be making a costly mistake for or against yourself. What you don't know can hurt you financially.
2. DECIDE WHETHER TO DO YOUR RETURN OR HIRE A PREPARER
The complexity of your return and not the amount you earn, determines whether or not to hire a preparer or to do it yourself.
3. TAKE CONTROL OF YOUR TAX LIFE.
If you decide to do your return yourself, you will be greatly benefited from developing a year-round tax plan. If, however, you decide that the task is beyond you, then you should get professional help, and when you do, work with your preparer.
TAX PLAN FOR THE YEAR
In developing a tax plan, you will need to get in the habit of trimming your taxes from January to December. As soon as the tax filing date has passed and you breathe a sigh of relief, the urge to forget about taxes is very strong, but now is really the best time to start planning for the next tax year. Careful planning throughout the year can save a few hundred dollars on your next tax bill. After you file your return, you'll know if a big return is due, if so you should adjust your W-4 withholding, this way your money can earn interest during the year instead of being an interest-free loan to the IRS.
As the year draws close, take one last shot at finding tax-deductible expenses. Now is the time to find out if you have spent enough on medical and miscellaneous expenses to exceed the limit for writing them off. Deductible miscellaneous expenses are those that exceed 2% of your adjusted gross income; deductible medical expenses are those above 7.5%. If you are not close to those limits, try postponing those expenses until next year when you might be able to deduct them. In other words, you should be seeking ways to trim your taxes all year round.
In GETTING PROFESSIONAL HELP, you should always keep in mind that high prices don't always mean you are getting the best service. It might be easy to find someone to fill out your tax return, but to find someone who can do your returns properly at a price yon can afford, might be more of a task so you should start looking early.
As was staled earlier, when you have found your preparer it's in your best interest to work with such a person. The following are things that you should expect from your preparer and what your preparer expects from you.
1. FEES. In your first contact with your preparer, it should be made clear how the charges are calculated.
2. CLEAR EXPLANATIONS. Your preparer .should be able to make plain what he is doing on your return and explain all deductions and other items.
3. EDUCATE. After spending a few years with your tax preparer he should have given you a better understanding of the tax laws and how they affect you. Also helps you to be more sensitive to your finances that cause tax problems.
4. OFFER TAX TIPS. Your preparer should call or write by late November to make you aware of last minute changes that might help to cut your tax bill.
Your tax preparer expects the following from you:
1. HONESTY. You may disagree about deduction, but failure to report income is a crime. You should supply your preparer with full financial details.
- 2. COMPLETE AND ORGANIZED
RECORDS. You should not allow your preparer to guess about things that your arc expert in. Even the best preparers cannot file a proper return if you do not supply him with the necessary records.
3. CAREFUL READING OF YOUR RETURN.
Since your preparer is working with information you gave him, you should check to make sure he interprets your records properly. Any mistake could raise your tax bill.
CONSULT WITH YOUR TAX PREPARER
before you make any major decision, like buying or selling a house, make a large charitable contribution, etc. How and when you make a transaction may not only save taxes but also determines how such an action should be reported to the IRS.
GETTING IT ALL TOGETHER
Sometimes the biggest job is getting all your records together. But before you can even figure out how much tax you owe, or how much refund you'll get, you will have to get your records together first.
COLLECT ALL YOUR RECORDS… INCOME AND EXPENSES.
Do not wait until April to start. Do not prepare your tax return by memory or guesswork. Keep records all year round and store them in an accessible place. The following is a list of what you will need:
1 FORM W-2. This is the statement made ity your employer of your pay and the income and social security taxes withheld from that pay.
2. EXPENSES. Canceled checks, mortgage statements, paid hills, student loan interest and other paid deductible expenses are records that give you a major source of deductions that cut your tax bill.
3. DEPENDENT CARE EXPENSES. Be sure to have the name, address, and social security number of dependent care provider.
4. CHARITABLE CONTRIBUTIONS. Any
item $500 or more must be supported by statement from receiving organization.
5. UNREIMBURSED MEDICAL EXPENSES.
For these expenses to be deductible, they must exceed 7.5% of your adjusted gross income.
6. MISCELLANEOUS EXPENSES. These include such items us safe-deposit box rental, union dues, dues to professional organization, and business publications. These must exceed 2% of your adjusted gross income.
7. TAX RETURNS OF PRIOR YEARS. Tax
returns for prior years may remind you of deductions and other items you might overlook.
MAKE A FINAL CHECK. Before you mail your return, be sure your
a) W-2 form is attached.
b) Your social security number is recorded accurately.
c) SIGN your return. If you file a joint return, both you and your spouse must sign.
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