10 Key Tips for Surviving Tax Time

By: Robert Thomson


Deadlines can be a problem no matter what it is you're doing. Deadlines that involve filling out government forms that affect your wallet are considered the main problem as April 15th approaches. You don't have to be worried, however, if you learn to prepare yourself for this annual duty. Good record keeping, orderly receipts, the right financial strategies and leaving yourself plenty of preparation time are the key ingredients of a stress-free tax season.

The following "10 Tips For Surviving Tax Time" will play out in different orders for different people, so read the list through a few times and renumber the entries to reflect your own priorities. If you do not know what your priorities are, or have any general confusion about tax preparation, then you should not be doing the return yourself. Get some professional help (no, not a shrink - an accountant or tax preparer) but make sure you listen up and pay attention, as you really do need to understand how taxes, and planning for their payment, are an important part of your financial life.

1. Timing is everything
One of the most common things to do at the end of a tax year is time some income and deductions. If you didn't think of it in time this year, plan to delay some of your income next time around to save on the tax bite. You can take deductions for professional dues, job-search expenses and other things by paying them ahead of time to get the tax benefit.

2. Check out the AMT
The AMT (Alternative Minimum Tax) is a 1970's creation originally designed to capture some taxes from high-income filers who could claim multiple exemptions and credits. The Congressional Budget Office calculates that almost 20% of taxpayers could fall under the AMT guidelines within a few years. If you do what's called a "full tax projection" you will know whether to increase deductions, reduce them or pursue some other strategy.

3. Retire some funds
A conventional Individual Retirement Account (IRA) will defer the tax bite as the investments grow, but the Roth version is tax-free. In an almost generous move, the IRS will allow you until April 15th to open one and fund it with a contribution for the tax year just ended. If you also have a workplace 401K plan, you should definitely plan on "maxing out" your contribution to it.

4. Like attracts like, green gets green
The government is rewarding efforts to "go green" and will reward you for making your home increasingly energy efficient over the next two years. You can qualify for as much as $500 in tax credits. If you build a new home that costs you 50 percent less to cool and heat than the average home (per government figures, of course), you can earn as much as $2,000 in tax credits by finishing construction by August 8, 2005.

5. Reduce capital gains
A long, hard and honest look at your investments may reveal some losing propositions that you could sell to reduce your capital gains tax. Losses are combined with gains, of course, but are deductible against income to the tune of $3000.

6. Delay the gratification
When you know there's a year-end bonus coming, try to arrange for your employer to pay it in January. (Again, if you didn't know this strategy this time around, make a note for next time around.) If the check has been cut and has "2008" on the date line, you cannot take advantage of this deferral simply by depositing it now. You have to have the right number on the line, and it's too late for "2009."

7. Marriage can help
You are considered married for the year even if you get married on the last day of 2008, even at five to midnight. Before you make this move, which of course should never be done simply for tax reasons, you will need to crunch the numbers, consider your new mate's earnings (or lack of them) and make a few projections of tax liability (or refunds). Marital status is a factor in a great many tax tables and IRS formulas.

8. Give to get
Cash gifts can be deducted in full, and property can be allocated the "fair market value." If you make donations of costly items, you should always get at least one professional appraisal so that everyone is covered - the recipient, the IRS and you.

9. Pay deductible expenses early
Pay your state taxes or property taxes early so that you can "accelerate" the federal deductions, and consider writing an extra mortgage check so you can deduct the interest. You should also think about getting any planned dental work or surgery done before the end of a tax year. Once again, if you are reading this tip too late to take advantage of it this time, make a note for later this year and don't miss out.

10. Give it to the kids
A gift of up to $12,000 does not have to be reported, but the check to the kids (or other relatives) has to clear before December 31st.

If you find yourself saying, "Now you tell me!" to some of these tips, you should copy, print or save this article (and others like it) and pull it out again every few months. You will have to join the growing legion of "tax planners" if you want to make the best of your annual tax ritual. You may be able to reduce or even eliminate taxes with the right kind of strategies. When your list is up to, say, 50 tips or so, you may even start feeling better about the whole process!

Article Directory: http://www.articletrunk.com

| More

1040-Tax Extension will file your online tax extension with the IRS and guarantee that the IRS will accept your application. Visit us online for automatic extension on your individual tax return.

Please Rate this Article

 

Not yet Rated

Click the XML Icon Above to Receive Employer Articles Articles Via RSS!


Powered by Article Dashboard