Most people wait until the April 15th tax-filing deadline is near and then rush around to gather their tax records and file their return which is both chaotic and stressful. Why not take a minute now to do a little planning and make next year’s tax filing season so much easier? Here are your six best strategies:
- If you itemize deductions you need to keep meticulous records which can be a real pain in the neck. Most people save the receipts in a drawer or file with plans to sort it all out later. The problem is that it’s hard to remember several months from now just what was the business purpose for a particular receipt. One simple solution is a free app called ShoeBoxed (www.ShoeBoxed.com. This app not only allows organizing and categorizing of your business receipts and it will also allow you to track your business mileage…a real time saver at tax-filing time.
- Monitor your itemized deductions. If you think you may fall near the line between filing the standard deduction or itemized deductions, you’ll want to monitor the situation closely. For 2014, the standard deduction is $6,200 for single filers and twice that amount for joint filers. You may be able to create a greater tax benefit by either accelerating (or postponing) deductions such as charitable gifts; mortgage interest, or retirement plan contributions between the 2014 and 2015 tax years.
- Double-check your withholdings. The typical goal we have for our clients is that they don’t get what we call an ‘April 15th Surprise’, meaning a big income tax bill they were not expecting nor do we want them to get a big income tax refund from the IRS. Now’s a good time to review your current withholding to see if adjustments need to be made. You particularly want to go through this exercise if you’ve had significant events that might affect your tax status such as a divorce, birth of a child, taken on or paid off a mortgage. Use the IRS Withholding Calculator for a quick and easy review.
- Review your quarterly estimates. If you are self-employed, you’re responsible for filing quarterly tax estimates (April 15th, June 16th, September 15th, January 15th). This is a good time to see if you’re on track for payments. In order to avoid a penalty, the IRS provides two ‘safe harbor’ rules. You must either pay in 90% of your actual taxes due for 2014 or you must pay 100% of your 2013 taxes. For those of you expecting to earn more than $150,000, you must pay in 110% of your 2013 taxes.
- Review your retirement plan contributions. At this mid-year point, do you find yourself in a position to up your contribution to your company 401k plan? Double-check to make certain you are not leaving any free money on the table in the form of company matching.
- Monitor personal use of vacation rental property. Lots of people own a beach or mountain home that they rent out in order to help cover expenses. You’ll want to keep good records regarding personal use if you want to maximize your deductions. In order to preserve the greatest tax benefits, you’ll need to keep personal use to under 14 days or under 10% of actual days rented.
A little bit of effort now can save you lots of time and headaches come April 15th.