It’s that time of year once again, fellow taxpayers. Time to listen to the endless drone of Christmas music, time to fret over what to give whom, time to blow fuse or two on your home’s electrical grid trying to outdo the neighbor’s light show, time to see if you will trigger the AMT this year.
Yes, the Holiday Season is upon us once again, and, as if we didn’t have enough on our plates (both literally and figuratively), the remaining 20 days of December represent the final countdown to a manmade deadline for making and executing any personal and corporate decisions which may have a direct impact upon how much tribute one wishes to voluntarily report and render to their local and federal tax farm.
What might those decisions entail? Or, more precisely, what can I do (within the confines of the income tax code, of course) to lower my 2014 income tax burden?
The answers to the above questions are truly personal, as tax advice, like medical advice, depends entirely upon the individual’s history, present circumstances, and future plans. Here at The Mint, we highly recommend consulting with a qualified income tax professional that can sit down and give one a proper assessment of their situation and help them plan now in order to take the proper steps to help minimize their current and future tax burden.
Here are 7 tips to help you and your tax professional prepare your 2014 income tax return and, more importantly, estimate your tax liability while you are still in 2014 and can theoretically do something about it:
- Gather state and federal returns from the prior two years: This will give your tax professional a baseline, if you will, of your income tax situation and let them know, often at a glance, what steps can be taken to help minimize your liability.
- Think about any life changes you have had in 2014: Did you get married? Have a baby? Send a child off to college? Sell or refinance a home? Relocate for work? All of these actions, and many more, may have an impact on your tax bill.
- Gather documentation to support income and deductions: This may seem basic, but why not prepare for a potential IRS audit before it happens? Maintain any W-2s, 1099s, Investment account statements, and documentation related to deductions such as charitable donations, mortgage interest statements, and child care expenses and keep them in a file along with the corresponding tax returns. Viola! Should the IRS call you, you at least have something to back up your numbers.
- Know the basis of your stocks: If you own corporate or mutual fund shares, a very important data point in terms of tax preparation is how much was paid for it. As many people hold shares for relatively long time horizons, it is best to keep a running file that is updated with each purchase. Your broker should be able to get this information for you if you have not kept track of this to date.
- Measure your home office: The home office deduction is taboo in some circles as it is seen as a red flag for audits. However, if you legitimately have a home office, you could be leaving a decent amount of money on the table if you do not take it.
- Contribute to qualified retirement accounts: If you have extra money and sense that you may be staring a tax liability in the face, consider funding an IRA or contributing more to a 401(k) plan before year-end.
- Consult a trusted tax professional: As we stated before, everybody’s situation is unique when it comes to income taxes. While everyone has to file income taxes, we each have our own, unique financial fingerprint. A trusted tax professional can help you not only catch missed deductions now, they can help you to plan for future events that, if not properly planned for, could trigger large income tax liabilities.
In the midst of overeating, overspending, and generating outrageous electric bills in the name of the Holidays be sure to take a moment to consult a trusted tax professional. Who knows? Making a few of the right moves now may just pay for some of those Holiday bills come April.