To Minimize Your Tax Headaches and Efforts in 2016
We all know that 2015 taxes are due … so why be thinking about 2016? Simple: plan to minimize your taxes and relieve you of a last-minute scramble to assemble tax info.
Predictably, the Internal Revenue Service has announced annual inflation adjustments for the tax year 2016. As ever, here at Blair + Assoc, we stand ready to stay on top of the changes and do the work so you don’t have to. That said, here are some ways we can work together to make your life less “taxing”.
Set up a folder today in a readily accessible spot to gather documents, forms and receipts for deductible expenses. That way you’ll have everything in one place as the year progresses and avoid losing or forgetting important items. When the postal service delivers your W-2, 1099 and other tax-relevant forms stick them in the file folder. Come year end, you’ll be pleased that you’ll be ready to go at tax time.
Visit With Your HR Office
Before doing so, do some preparatory thinking and note-taking. Your objective is to be sure your paperwork is completed in a way that best serves you.
Your W-4 Form: As you know, your employer withholds taxes from your pay. The “source document” to determine the withheld amounts is your W-4 form. Click here for a refresher of the information required on this form.
As you’ll see, the form includes worksheets to identify your Personal Allowances, Deductions and Adjustments (if you plan to itemize deductions rather that take the standard deduction) and information if there are Two Earners or Multiple Jobs. The information you provide will determine how much your employer will be expected to withhold from all of your income – base pay, commissions, vacation pay and bonuses.
Generally, the fewer allowances you claim, the more your employer will withhold. Conversely, the more allowances you claim, reduces the amount withheld. So, review your W-4 and revise appropriately if your circumstances have changed, e.g. a new job, change in marital status or a new child.
Note: The above refers to income received from your employer. Be aware that withholding rules vary based on the source of the income, e.g. retirement benefits, unemployment compensation and gambling winnings. Any questions, be sure to let us know.
Maximize Your Individual Retirement Account (IRA): Deductions vary according to your modified adjusted gross income (MAGI) and whether or not you're covered by a retirement plan at work.
If you (and your spouse, if applicable) aren't covered by an employer retirement plan, your traditional IRA contributions are fully tax-deductible.
If you (or your spouse, if applicable) are covered by an employer retirement plan, you can still make contributions to a traditional IRA, but depending on your income, they may qualify as partially tax-deductible or totally non-tax-deductible IRA contributions.
Click here for 2016 IRA Contribution and Deduction Limits - Effect of Modified AGI on Deductible Contributions If You ARE Covered by a Retirement Plan at Work
If you aren't covered by a retirement plan at work Click here.
Keep in mind that you can never claim a tax deduction for more than what you contributed to your IRA that year.
Maximize Your Retirement Account: If your employer provides a 401(K) plan, early on in 2016 is an excellent time to revisit and perhaps revise your contribution level. Ideally, go for the maximum, especially if there a matching amount contributed by your employer. In any event, even without maxing out your contribution, stretch to put away as much as possible and build your nest egg.
Consider three simple steps to streamline your tax-savings and make 2016 as tax-stressless as possible.
1. Set up a file folder or accordion file to stash tax-related forms. Then you can sort them before meeting with your tax-preparer to make life easier for both of you – and less expensive for you.
2. Make a list of what to discuss and/or revise with your HR department.
3. Schedule a meeting and execute on your checklist.