With the IRS deadline to file taxes just past, you may be tempted to relax, pull a Scarlett O’Hara and think about next year’s taxes tomorrow. While that attitude is perfectly understandable, it will cause you to miss an excellent opportunity to make your 2018 tax season much less stressful and more efficient. First, review the tax form you just filed. Should you be making adjustments? Are you paying too much in taxes? Should you be adjusting your withholdings? Should you be paying estimates? If so, are you calculating your estimates correctly? Are you maximizing your deductible IRA contributions? If you are unsure about any of these answers, contact us. We’d be happy to answer any questions you have. Now is also a good time to set up an organizational system for next year’s taxes. Create a file in which you can collect receipts and other tax documents. Label your receipts manually, or categorize them electronically in real time so you don’t have to go back months later and try to figure out which expenses qualify for tax deductions or exemptions. Keep track of any changes in your life that might affect your withholdings and/or credits including marital status, children, home ownership, educational expenses, etc. If you ended up with a particularly jarring tax bill, you can request and submit an Installment Agreement Request Form that will allow you to stretch out your payments. After you do so, sit down with a professional to figure out what adjustments you can make to prevent a large bill in the future. Lastly, be sure to track changes in the tax laws as they will affect not only your return next year, but also some of the financial decisions you make throughout the year. We’ll be writing more posts that note some of the upcoming changes and how they will affect you, so be sure to check back in the coming weeks. With… | Read More »
tax tips
Three ways you can lose money by filing your taxes
With the April 17 deadline fast approaching, many people are scrambling right now to file their taxes on time. While there is both plenty of time to file a traditional return and the option to file an extension, it is critical to proceed with caution. Any missteps probably will wind up costing you money. Here are three ways you can actually lose money by filing your taxes. You file an extension but fail to pay the taxes you owe. All tax payers have the right to a six-month extension to file their taxes, they just need to submit Form 4868. They can also file an extension request online. But you still have to pay the taxes you owe on time. The extension only applies to the paperwork, not the payment. If you fail to pay by midnight on April 17, you’ll face a penalty and you’ll also have to pay interest on the rest of the money you owe. You make a mistake on your return. Typos can cost you a lot of money. The three most common errors are math mistakes (less likely with available tax software but still a concern), an incorrect Social Security number, and the failure to sign or date the tax return. At best these mistakes will delay your refund, at worst they’ll result in penalties. Do not file in haste. If you’re running out of time, file an extension, pay if you owe, and either complete your return carefully yourself or, even better, hire a tax preparer to complete it for you. You don’t claim your refund in time. You have three years to claim a refund. If you file your tax return more than three years after it is due, you forfeit your right to your refund in most cases. In this case, procrastination could cost you a significant amount of money. The IRS offers many helpful tips on its website. If you… | Read More »
An apples to apples explanation of taxes
Ah, spring. Can you feel it? The sweet chorus of chickadees chirping; “Sun’s up in an hour. Hey. HEY! Fifty-nine minutes now.” The gentle tingle of an afternoon breeze radiating warmth, hope, and the seeds of renew…ah-Choo! Can you ah pass ah me Choo…a Kleenex? The mysterious migration from glen to glen of the species taxicus collecticus signaling subtly, almost imperceptibly that: “You can use Form 1040A if your income is only from wages, salaries, tips, interest, ordinary dividends, capital gain distributions, pensions, annuities, IRAs…” Hey! Stay with me. Taxes aren’t as simple as April showers, so it’s only natural to find them confusing. To some they’re like a treacherous forest, where one dollar or step too far can lead you over a cliff. You’ve probably heard the notion: “If I pick up more hours it will push me into a higher tax bracket, and I’ll end up with less money than if I hadn’t taken overtime in the first place.” To put it simply, that’s almost never true. It’s important to remember that as taxable income (minus deductions and exemptions) pushes into higher brackets it is subject to a “graduated rate” that applies specifically to…to… You fell asleep, didn’t you? All right, forget all that. We’re not learning about taxes. No “alternative minimum” this, no “federal withholding” that. It’s spring. So let’s talk about strawberries. My family goes strawberry picking every year in my uncle’s humongous strawberry patch. He loves strawberries. Loves ‘em so much he thinks everyone should have some. But he also wants everyone to see the “fruits of their labor”. So instead of splitting ‘em all evenly, or letting everyone keep what they pick, he came up with a system of colored buckets and freezers. Yeah, he’s kind of crazy. But here’s how it works: First, everyone gets a white bucket. The white bucket is special. Every strawberry you put into the white bucket you get… | Read More »
Three ways to start your tax planning now
It is said that there are only two things certain in life – death and taxes. So if you are reading this, you haven’t reached death yet but you are probably paying taxes. No one likes to think about taxes, but tax planning is something that should happen continually, and not just in December. Here are some tax planning strategies you can start to consider. Harvesting losses. What do we mean by that? If you have an investment account that is subject to income taxes every year you are probably invested in some stocks or mutual funds. Since this has been a challenging year for the stock market, consider selling off some of your gains to capture them and selling some of the losers to offset those gains. That is harvesting. The IRS tax code says you can only subtract $3,000 of losses each year after gains have been offset. So let’s say you have $50,000 of gains you can capture from your investments, and you have $35,000 of losses. You would only pay taxes on $15,000 of the gains as the losses would offset your gains. What if instead your losses were $55,000? You have $5,000 more in losses than gains so you can only deduct $3,000 for this year and carry over $2,000 for next year. Stacking itemized deductions. This takes planning for two years at a time. Let’s assume you are below the phase out levels for itemized deductions. If you have a larger amount of income this year than usual, you could consider making state income tax estimates by December 31st to count for the current year. Consider making extra charitable contributions before December 31st. If you usually pay your real estate taxes in January through July, consider paying most of them in December. Try to leave $2,500 of real estate taxes on your personal residence for the following year so you will get the Wisconsin… | Read More »
Summer is a great time for cleaning out tax documents
As you ‘re doing your annual summer cleaning, you may be asking yourself, “Do I need to keep these tax returns dating back to the 1980’s? The short answer to that question is no. So how long do you need to keep old tax documents? That answer to that question is a little bit more complicated. As always, the IRS has some good information on their website – www.irs.gov According to the IRS: “The length of time you should keep a document depends on the action, expense, or event the document records. Generally, you must keep your records that support an item of income or deductions on a tax return until the period of limitations for that return runs out.” So what exactly does that mean? The IRS recommends that you keep your tax returns and any supporting documents for 3 years after the date of filing. So if you filed your 2013 tax return on April 15th, 2014, you would keep all of your records until April 15th, 2017. As with any IRS rule, there are exceptions: 1. If you have under reported your income by 25% the IRS can go back 6 years. If you claim a deduction for worthless securities or a bad debt, keep your records for 7 years. If you are self-employed, it is recommended that you keep your records for 6 years. If you have documents connected to assets such as rental property, stocks, bonds, or business assets etc., keep those records until 3 years after you dispose of the asset. Documents for distributions from an IRA should be kept for 7 years. If you do not file a return or file a fraudulent return, keep your records forever because the IRS can go back indefinitely. If you still just can’t get yourself to throw out all of those old documents from 1985, there are other options. In the world of high technology that… | Read More »