2 Target Dates to Eliminate Stress
Synonyms: challenging, tough, trying, arduous, irksome, draining.
Now that we’ve identified a descriptor of how most people view tax-time, let’s invest the next four minutes to review two dates and a list of action items to “inoculate” your self from the stresses of satisfying the tax man.
Start With Two Target Dates
Your target dates are your commitment to yourself and your accountant to have all necessary supportive tax documentation ready to review by a specific date. Your first date should be December 31 to have everything organized other than final income numbers. You will be relieved to see how it will eliminate any urge to procrastinate on your part.
Your second target date is to schedule your meeting with your tax-preparer, ideally, by the end of the month of February. By then you may have received all statements related to your sources of income during the previous tax year.
Note: Don’t delay making your appointment even if you don’t have every bit of information. We can fill in the blanks later on.
Choosing a date well in advance of April 15 helps both you and your tax advisor to avoid the inevitable last minute rush. Additionally, if you owe money, knowing the damages sooner rather than later provides you more time to figure out how you will pay.
Get Out of Your Shoebox
If you are like many people, your financial filing is tossed into a receptacle that likely has a shoe store label applied. “Getting out of your shoebox” means to invest a few hours to get organized. It will save you time and anxiety down the line, plus a bunch in tax-preparer fees. You will pay extra if your preparer undertakes “administrative assistant” efforts to sift through records, eliminate duplicates and make photo-copies.
Your system does not have to be elaborate. Start with asking your tax-preparer for a tax-organizer worksheet. Most will provide one which you may use as a tool to fill out with information from last year’s tax return as a prompter … a real time-saver.
Then start to organize your information in a logical manner, meaning begin with the big obvious stuff that will help identify your income sources and write-offs to minimize your tax bill.
Possible Income Reporting Forms
• Social Security
• Brokerage statements
• Mortgage interest on your primary residence as well as a vacation home or rental property
• Real estate taxes
• State & local income taxes
• Local personal property taxes
• Charitable contributions – cash and non-cash
Of course you will need to assemble the supportive documentation for the above so make that part of your new filing system.
Quick Tip: Check with your credit card companies. Often you will be able to access online summaries of your expenditures and print out those that are tax-deductible.
Review estimated federal income tax and make adjustments where necessary to avoid or reduce an estimated tax penalty. It may require you to increase your withholding or adjusting estimated payments for the balance of 2017.
If you have poor-performing stocks or bonds, consider selling them by year-end to deduct the loss.
Contribute to one or more charities.
• Click here to view a brief IRS video overview of what charities qualify and how to account for and document your contributions.
• Make charitable contributions direct from your IRA, if you are at least 70½ years old.
It’s not too late to maximize deductions for work-related opportunities that may include contributions to your employer’s 401(K) retirement plan and, if offered, saving pre-tax dollars in a flexible spending account to supplement medical care. Also, if you changed jobs and incurred relocation costs, you may qualify for some write-offs.
Also, don’t ignore significant events that have happened in your life during 2017 that may affect your income tax status. Just a few examples follow.
Children may provide exemptions and child tax credits. Additionally, if your family expanded through adopting a child, you may qualify for a tax credit. Likewise, there may be a dependent care tax credit to reimburse you for some of the costs of child care while you are working.
Marriage during 2017 will change your tax filing options and likely save you some money by filing jointly with your new spouse.
Divorce of course has many ramifications including your tax filing status. A divorce that is final right up to December 31 means that each party is considered unmarried for all of 2017.
Major purchases or sales should be presented to your tax-preparer, even if you are doubtful of any tax benefit.
A business start-up requires expert advice from a capable accountant. Depending on a number of factors, including the form of business organization, a new business may have tax ramifications to you as an individual.
Be sure to think ahead. Have you gone through more of a hassle in recent tax-filing seasons than you care to repeat? Consider using software to help manage your finances. This is a time-saver and convenient resource for record-keeping that will help at tax-time.
It will not replace the value of a capable accountant as it is their responsibility to keep track of all the changes in rules and regulations to maximize your deductions, minimize your tax liability and conform to appropriate reporting forms and deadlines. As a case in point, consider the current confusion over the ever-moving target of the Affordable Care Act and possible tax reform changes.
Are there anticipated events in 2018 that may affect your tax status, e.g. drawing down income from a retirement account, sale of an asset or starting a new business? If so, bring that to the attention of your tax-preparer to help with any pre-event planning that may lower your tax bill.
Finally, if things get more complex than you anticipated and you are unable to meet the April 15 deadline, your accountant will help by filing for a six month extension. Yes, you will need to make a payment equal to your estimated tax owed, but you will not incur any penalties while you nail down the missing pieces.
Don’t be a victim! Be proactive and early in preparing for your tax season and avoid it becoming yet another “taxing” season.
The above is an overview only. There is more to know and you’ll likely have questions. Give us a call and we’ll quickly help you with a stress-reduced start to 2018.