Time for Tax Planning

Okay, I admit it.  I feed this squirrel, which is why he’s hanging out and staring me down.  I suppose I fascinate him, because every time he sees me, I’m working.  Perhaps he feels sorry for me.  Or he’s just hungry again.

He’s shaken me down for enough food that he’s set for the winter.  He’s got nothing to worry about, except for the neighbor’s cat, who I also feed.  (He prefers to eat at my house than his own.)  Too bad none of these dependents make it to my tax return.  Which of course, brings me to next year’s tax return.

The squirrel is all set for the year, but are you?  Have you done any tax planning?  Or do you think all you need to do is toss your documents at your preparer in April?  Will there be tears and tantrums if you get a big tax bill instead of a big refund?  Without planning, where do you stand?  There are changes every year to take into account.   Some people get married and are surprised by a large tax bill, because the things that worked when they were single suddenly do not work now as they are in a higher tax bracket, and they have a huge balance due.  Others have more deductions available to them during the tax year (perhaps large donations, a new dependent, a new house purchase bringing  real estate taxes and mortgage interest paid, for example), and they can adjust their allowances at work to have more money now in each paycheck, as opposed to a large refund.

Even if you prepare your own tax returns, it’s a good idea to do planning, perhaps even with a tax professional, to get some perspective on where you stand now, and to put any necessary changes in motion before the end of the year.  Once December 31st comes, it’s all over.  The window of opportunity has closed on almost everything.

Ready for some planning?  Time to pull out your important paperwork – paystubs, account statements, donation receipts, last year’s tax return, etc. and give yourself some interrupted time.

Here are some of the things to look at:

  • Is your withholding at work sufficient? Did you start a new job and submit a correct Form W-4?  Compare the withholding to last year’s salary.
  • Any major changes you should take into consideration? For example, marriage/divorce; large salary change; the sale of any restricted stock options, etc.
  • Will you max out your retirement plan at work by year end?
  • Will you fully fund an IRA by the deadline?
  • If you have children, do you have a 529 plan in place for their education? How much have you contributed so far this year?
  • Do you have any overseas accounts that will involve you chasing down statements that might take some time?
  • Cleaning out the garage? Have you valued the donations using a reasonable valuation guide for the fair market  value and attached a list to the signed and dated donation receipt?
  • Self-employed? Those books and records need to be in order NOW.  Estimated taxes need to be paid and they are based on net profit.

The takeaway here is that you can’t chase these things down next April and expect a positive outcome.  A little bit of planning now will plant the seeds for a peaceful tax filing, with better results, since your receipts will be organized and you know where you stand.

And speaking of receipts, if you have fading receipts, it’s time to digitize them before they are blank.  If you walk into an IRS audit with a faded or blank receipt, the IRS will allow you exactly what they can see – nothing.  As I always say, a scanner is your best friend.  One of the best investments you can make.

Time to go feed the squirrel, before the neighbor’s cat shows up.  Happy planning!

Giving the finger to the IRS is never a good idea!

It’s never a good idea to give the finger to any federal authority; especially the IRS.

http://www.cbsnews.com/news/irs-gets-fake-bomb-finger-ex-defense-contractor-authorities/

Sadly, a man sent a fake bomb and his real finger to the IRS, as well as a bullet and a joint.  He is now in jail.

In addition to tax issues, there were clearly other factors here that led to this particular act.  I am not a psychiatrist nor do I have specifics on this person’s tax case (nor could I comment if I did), but I can share from experience with hundreds of clients with tax problems that people get stressed out and not everyone has a normal reaction, although most reactions are less drastic.

Many of these people let years and years go by before taking steps to settle their issues.  Another bad idea…….it doesn’t get better with time.

Believe it or not, if you have a tax problem, you have options.  You may not know what they are, but a good tax professional will.

Keep your digits and get help.

Abby

Pick up your copy of “101 Ways to Stay Off the IRS Radar“, available at Amazon and Barnes&Noble.com.  It is the most fun you will have with taxes, and you’ll learn important information you can use year round!

Deducting business mileage

This is the first of many posts “from the other side of the desk”:

The other day I heard a tax professional (whom I will call Mr. K) complaining about a situation he had with a new client.  The client wanted a deduction for business mileage, but he didn’t have a log.  “Oh, I drove about … 4,600 miles”, said the client.  (Probably got that number off the ceiling too.)  Mr. K explained to the client that estimates are not allowed; written proof is required.  Mr. K looked over the client’s prior year tax return and asked where the mileage info came from last year.  The client angrily replied that his previous tax preparer always provided the numbers, and made sure he paid a low amount of taxes.  (Oh joy…one of those.)

The upshot was that the client departed midstream and it was Mr. K’s turn to be upset — he lost an hour of time he’ll never get back.

My clients know better than that.  Tantrums don’t impress me.  I have thrown people out of my office for less.

Why?   Think fraud, tax evasion, outright stupidity and as my colleague frequently says, an inflated sense of entitlement.  But with commercials running all through tax season saying “you DESERVE a refund”, as if a refund is some sort of participation trophy for filing – I suppose it’s to be expected.

So, I thought today is a good day to remind taxpayers about a mileage log.  It’s so easy to do it correctly.  It takes just seconds to notate your miles every time you drive for business.  This will make tax time a breeze, save you a ton of money, and you will have records that will stand up to the IRS.  Don’t wait until tax season or worse, a tax audit, to scramble.  (That’s like writing your book report due today on the bus on the way to school.)  Start your log today.

I posted a cheat sheet at RealLifeTaxAdvice.com covering exactly what you need for a bulletproof mileage log.  Visit the website and get your free download today.

Want more help?  Get on the list for our upcoming ebook including a done-for-you mileage log with all of the information you need to stay IRS-compliant.  We’ll break down the two different ways you can report your mileage expenses, how to deal with an IRS audit for your mileage, and other great tips.  You’ll get first dibs when it comes out, AND a coupon code if you email me now.  No obligation.  Email me at team@RealLifeTaxAdvice.com.