So here we all are, ready to hit the New Year running and maybe we should get some of our finances in order. To help you get yourself straightened out or to remind you of things you may have forgotten, here are ten timely tax tips for any New Year:
1. Get your receipts ready now from the previous year. If you have already been keeping a running tally of your expenses in spreadsheets, Word documents, cell phone notes, pdfs, super! You are ahead of the game and you definitely are on the ball. If you haven’t, gather all your receipts and start placing them in categories so you will be able to total them easier. It will also make things easier for you when you do your own taxes or if for your tax professional.
2. Don’t be a martyr or a know-it-all at tax time. If you are having problems doing the do-it-yourself software packages that are out there (and some are easier to use than others), get a tax professional to help you. All you have to do is see if they can import what you have already loaded into the software (and in most cases they should be able to) and you both are good to go.
3. Don’t be afraid of doing your own taxes. If you are good with numbers, can read and are patient, anybody can do their own taxes. As stated in item two, the “gotcha” is if it is very complicated and when you start researching items on the irs.gov website the tax law starts to sound like a foreign language. A dead foreign language at that.. For simple returns, everybody should be able to do or at the very least understand their own taxes.
4. Be honest. Friends may tell you a lot of things and sometimes it is bad advice. Take the high road and declare all your income, it is the law. You are taxed on all income made world wide and if you learn tax law you can see the exceptions and items where you get credit for paying taxes to foreign nations etc.
5. Wait till you get all your bank information, stock information, etc. Especially hold off till you get all your W-2s. It is easy to amend a tax return (I do that all the time for clients) but it is even easier to be a little more patient, wait for all your documentation and file your return the correct way the first time.
6. Don’t forget to pay quarterly taxes if you get one-shot payments for sales of movie scripts, books, etc. If you hit the lottery, make sure that you have money paid so that won’t ding you at the end of the year. A very rough rule of thumb is to put aside a third of any income for payment to Federal and any state taxing authorities. If you owe penalties on something, expect penalties and interest to jack your payments to over one third of your income in some situations. You will need to look at this on a case by case basis.
7. Don’t complicate your life. I had a client who was so busy recently trying to find expenses that the person came to the conclusion, “This is stupid. I am looking at paying $10,000 for expenses that will save me $300 in taxes.” I agree. Sometimes it is just easier to relax and pay what you owe based on your income and how you earned it.
8. Double and triple check all tax returns before electronically filing or mailing them in. People get excited and they transpose numbers, they put items in the wrong categories or enter them incorrectly. Tax software is garbage in, garbage out (GIGO) and if you don’t check you won’t know. Take the time and check your information as to what you key in or what you say to your tax pro and if that is a match with what you were talking about.
9. Listen to friends but unless they are exactly like you, watch their tax suggestions. What works for one person or family may not work for the next couple down the block. Each tax situation is unique and different from person to person.
10. Set up you tax interview or preparation time with your tax professional early, even if the meeting is for later in the season. It gives the tax pro time to prepare for your arrival and if they are doing their job, they will have done more legwork for you before you set foot in his or her office.
Anybody have any more suggestions? Please post them below in comments. Remember that I don’t post comments for articles or posts that are over 2 weeks old.
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Ten Timely Tax Tips for Any New Year