It is the time of year when we in the US prepare for our annual accounting with the government. Did we pay enough into the system, or do we owe more? It is the time of year when, for all of my married life, I have lived like a widow, because my tax accountant hubby works long hours helping you prepare for your reckoning with the IRS. I thought I’d share some insights with you.
Your tax return is never finished until the last amendment has been filed. You can change the thing next year if you find something you left out this year. You can file an extension if you don’t have your act together by April fifteenth. You do have to pay your estimated tax on the fifteenth if you think you might owe more than you withheld.
Insider Tip: There is a little known reason why you might want to file for an extension. Your tax accountant turns into a zombie on April first. He forgets his wife’s name or that he has a wife and children. He no longer understands simple statements like, “Honey, your mom called and wants you to call her back.” He won’t call her. He or she is highly likely to bite your head off. Never demand that your tax accountant complete your return between April first and about April twenty-fifth. File for an extension.
Are you getting a nice return this year? You failed to plan correctly. There is no reason to let the government use your money when you don’t owe it to them. Better management has you paying them a few hundred. Just remember to save for paying those taxes.
Of course, you are paying too much in taxes. Everybody forever and ever has paid too much in taxes. Do you have any idea how much you pay? Forget the stated tax rates. Everybody has exemptions and deductions, so it is mathematically impossible to pay the full rate, or if you do, fire you tax preparer. To find out what your real income tax rate is, divide the amount of tax you paid by your gross income. Your rate should be below twenty percent. If it is over fifteen percent, maybe you need to find someone else to do your taxes. Look for a Certified Public Accountant with experience in tax. You may also need to do some better planning to lower your bill.
Taking your return to a tax accountant does not have to cost a fortune. You will need to have good records. A good accountant will send you a tax preparation package based on last year’s return to help you remember to include all your income by category and include all your deductions. I do my businesses on a sheet of paper that has a column for “in” and another for “out.” I list both total income and expenses by category. My accountant hubby tells me what categories to use. The better prepared you are, the less it will cost.
Save your receipts. Hubby is savage about this one. Your credit card bill showing expenses at Office Depot or the PUD is not a receipt. If you should get audited, an auditor does not have to accept credit card bills as receipts, so you will lose that deduction.
About those audits: Audits happen. They don’t mean you did anything wrong. Even if you did your return yourself, you might want to take a tax accountant to an audit with you. More than a few times, we’ve gotten a call at home from someone who is distraught because the IRS is auditing them and thinks they owe twenty thousand more in tax. Curiously, Hubby has always been able to get a better outcome for the client. Occasionally, the audit shows that they get a refund.
Yes, you do have to pay your taxes if you cannot demonstrate that you don’t owe them. One of the more common frustrations Hubby sees is people with business losses that don’t keep records. The IRS will receive 1099’s stating they had income. If they cannot show that the income was offset by business losses, the IRS will hound them the rest of their lives to get that money and may bill their estate. Keep your receipts.
If you are not detail oriented, hire someone to do your taxes for you. If you own businesses, your tax preparer should be at least an enrolled agent working with a CPA. The CPA has more training and is required to take continuing education every year to keep current on law and procedures, so they will be current on what the law requires for your situation. The private practice CPA in the nice office may not be as expensive as the storefront, franchise tax preparer. They may bill differently per form or per hour.
Finally, TurboTax or one of the other tax programs for your computer is fine for doing your return if you have not been buying and selling businesses, stocks or real estate. Most wage earners without some unusual financial activity can use TurboTax.
Save your receipts.
Your tax return is never finished until the last amendment has been filed. You can change the thing next year if you find something you left out this year. You can file an extension if you don’t have your act together by April fifteenth. You do have to pay your estimated tax on the fifteenth if you think you might owe more than you withheld.
Insider Tip: There is a little known reason why you might want to file for an extension. Your tax accountant turns into a zombie on April first. He forgets his wife’s name or that he has a wife and children. He no longer understands simple statements like, “Honey, your mom called and wants you to call her back.” He won’t call her. He or she is highly likely to bite your head off. Never demand that your tax accountant complete your return between April first and about April twenty-fifth. File for an extension.
Are you getting a nice return this year? You failed to plan correctly. There is no reason to let the government use your money when you don’t owe it to them. Better management has you paying them a few hundred. Just remember to save for paying those taxes.
Of course, you are paying too much in taxes. Everybody forever and ever has paid too much in taxes. Do you have any idea how much you pay? Forget the stated tax rates. Everybody has exemptions and deductions, so it is mathematically impossible to pay the full rate, or if you do, fire you tax preparer. To find out what your real income tax rate is, divide the amount of tax you paid by your gross income. Your rate should be below twenty percent. If it is over fifteen percent, maybe you need to find someone else to do your taxes. Look for a Certified Public Accountant with experience in tax. You may also need to do some better planning to lower your bill.
Taking your return to a tax accountant does not have to cost a fortune. You will need to have good records. A good accountant will send you a tax preparation package based on last year’s return to help you remember to include all your income by category and include all your deductions. I do my businesses on a sheet of paper that has a column for “in” and another for “out.” I list both total income and expenses by category. My accountant hubby tells me what categories to use. The better prepared you are, the less it will cost.
Save your receipts. Hubby is savage about this one. Your credit card bill showing expenses at Office Depot or the PUD is not a receipt. If you should get audited, an auditor does not have to accept credit card bills as receipts, so you will lose that deduction.
About those audits: Audits happen. They don’t mean you did anything wrong. Even if you did your return yourself, you might want to take a tax accountant to an audit with you. More than a few times, we’ve gotten a call at home from someone who is distraught because the IRS is auditing them and thinks they owe twenty thousand more in tax. Curiously, Hubby has always been able to get a better outcome for the client. Occasionally, the audit shows that they get a refund.
Yes, you do have to pay your taxes if you cannot demonstrate that you don’t owe them. One of the more common frustrations Hubby sees is people with business losses that don’t keep records. The IRS will receive 1099’s stating they had income. If they cannot show that the income was offset by business losses, the IRS will hound them the rest of their lives to get that money and may bill their estate. Keep your receipts.
If you are not detail oriented, hire someone to do your taxes for you. If you own businesses, your tax preparer should be at least an enrolled agent working with a CPA. The CPA has more training and is required to take continuing education every year to keep current on law and procedures, so they will be current on what the law requires for your situation. The private practice CPA in the nice office may not be as expensive as the storefront, franchise tax preparer. They may bill differently per form or per hour.
Finally, TurboTax or one of the other tax programs for your computer is fine for doing your return if you have not been buying and selling businesses, stocks or real estate. Most wage earners without some unusual financial activity can use TurboTax.
Save your receipts.
RSS Feed