Right now, the idea of thinking about tax filing season may sound as welcome as the hiss of air leaking from your swimming pool raft. But planning ahead may keep you from getting soaked later.
So if you’re considering anything more complex than a standard deduction, this is a good time to take a look at things you can do before the end of the year to save money and avoid April stress.
First, you need to get organized. If you’re thinking about taxes now, you probably aren’t the type of person who shows up at the preparer’s office with a sack full of receipts. Still, if your record-keeping has fallen behind or gotten a little sloppy, it’s good to tidy up before the crush of the late-year holidays.
Then spend a few minutes at https://www.irs.gov/credits-deductions just to make sure you’re considering all the credits and deductions to which you’re entitled. The site’s News & Events page can also be a treasure trove. Scan the headlines to see if there’s anything that might benefit you.
One of the primary aids for planners this year is that in December, 2015, Congress extended a number of a tax breaks instead of waiting until spring and extending them retroactively. Among them are tuition deductions, sales tax deductions, energy efficient homes credit for individuals and depreciation advantages for businesses.
Next, think about any major changes you’ve been through in the past year. Start a business? Lose a job? Buy a home? Get married or divorced? Have a child? All have tax implications and an impact on the way you file your return.
Another area to examine is your charitable donations. Whether you’re generous, or less so, having a plan for your giving helps with your taxes. Making those donations before the end of the calendar year will help offset your tax bill. Those donations don’t have to be cash. Donating property that you’ve owned for at least a year or appreciated stocks. Remember to save all receipts. Carefully filing them now can save some discomfort later.
You can also donate to yourself — in other words, ramp up your contributions to your retirement accounts. If you’re not giving the maximum to your 401(k), you’re losing tax benefits.
Check any flexible spending accounts you have for health or child care. Your contributions into the account aren’t taxed, but the money evaporates at the end of the year. Make sure you have a plan to spend it all.
Depending on your level of control, making payments before the end of the year and deferring income until after Jan. 1 is another way to keep your tax bill low.
As you’re working through your possibilities, keep an eye on your Alternative Minimum Tax triggers. The AMT, designed to keep the wealthy from using legitimate tax incentives to reduce their bill to almost nothing, does away with many of the common deductions like the personal exemption and state income tax paid. If you’re close, do your research or seek advice from your tax expert.
Finally, schedule an end-of-year review appointment with your preparer. That will allow some time for any decisions you need to make before the calendar flips over and it’s time to say “wait ‘til next year.”
The Internal Revenue Service and tax software people lead you to believe that your filing is getting easier and easier. Meanwhile, the tax laws remain dense and complex.
The distinction is that the simple and fast way isn’t always the best way. So why should you pay to have someone file your tax return? The top reason is that you can save money. If a tax professional finds just one item that you or your prepackaged software missed, it can more than recoup your outlay.
More difficult than deciding to choose a tax professional is deciding which one to choose. There are a bewildering number of options from chain preparers to single-person shops to tax preparation specialists.
The big preparers have the same advantages that other retail chains have. Their employees receive some training, they are used to solving simple tax questions.
- Consider if your return is not complex and you are solving relatively simple problems, and they will take care of you quickly.
Enrolled agents (EAs) are licensed by the federal government, have passed a comprehensive IRS examination, can represent you in disputes, and are required to participate in continuing education. To find an agent near you, check the directory at http://taxexperts.naea.org/.
- Consider if you have real or imagined fears of facing an audit. Also consider if you run a small business or you need help to reduce your tax liability.
- Consider if you need long-term tax planning, you have opened or closed a business, your life situation has changed dramatically, or you have had high tax bills and are looking for relief this time around.
Tax lawyers are not necessarily return preparers but they can help with advice in complex legal circumstances.
- Consider if you are facing criminal charges.
Regardless of the type of preparer you choose, it’s important to ask some questions before you drop off your documents and walk out of the office.
The IRS has a handy list of things that you should know about your preparer here: https://www.irs.gov/uac/tips-for-choosing-a-tax-return-preparer
In addition, you probably want to know if the professional is familiar with situations like yours, is safe or aggressive when it comes to deductions, what documents they will need, and how accessible they are once your return has been filed. Finally, watch out for these red flags with your preparer. If you see even one of them, walk away. Quickly.
- You are asked to sign a blank return.
- You are told your taxes can be prepared just using your last pay stub.
- Your return will not be sent directly to you or directly deposited in your bank.
- Your fee is based on the amount of the refund.