Keep good records:
Start a tax return file the beginning of each year and place in it the receipt for property tax paid on cars, boats, trailers, motorcycles and real estate, etc. Remember that items are deductible in the year they are paid. If you pay a 2013 property tax bill in early 2014, it is deductible in 2014. The fact that it was a 2013 property tax bill does automatically make it a 2013 deduction. Retain all charitable contribution receipts. Remember that if you donate and receive a gift in return, your deduction is limited. When you donate non-cash items, keep the receipt and make a list of the items donated. Include the estimated thrift store or yard sale value on the list. Trying to assemble all of these items at tax time is difficult. Gather the data during the year to make it easier! Place W2’s, 1099’s etc. in the tax file for that year as they arrive.
If you have rental property:
Start a file at the beginning of each tax year for each rental and place all receipts in the file during the year. Keep a log for each rental payment received. Keep a mileage log for trips for repairs, supplies, etc. Mileage adds up quickly and is very difficult to estimate (and defend if IRS asks) at tax time. When mortgage interest statements (Form 1098’s) arrive, label them for the specific rental property and place them in the rental file.
If you have a small business:
Start a file at the beginning of each tax year and place all receipts in the file during the year. Keep a mileage log. Remember that the IRS standard for business expenses is ‘reasonable and necessary’. This means that expenses must be reasonable and necessary for the operation of the business in order to be deductible. Clients are sometimes confused and think that an expense is deductible just because it is paid with a business check.
Use the tax organizer provided by your tax preparer:
The tax organizer lists all of the income and expense items from the previous tax year and is an excellent template for items you may need to gather for the current year. Feel free to write notes/questions to your preparer on it.
If you sell stocks or real estate:
Make sure you know what your tax basis and acquisition date was. It is much easier to research these items during the year.
Check your tax withholding during the year:
Make sure that the withholding is adequate based on your tax projection. If you begin receiving unemployment, check with your preparer to see if tax withholding is suggested.
Separate personal, rental and business expenses:
File expenses in the correct folder during the year to avoid tax time stress and frustration. If personal and business expenses are co-mingled, clearly label personal items so you can subtract them at tax time.
IRS child tax credit ends at age 16:
This credit can be up to $1,000 and losing it can make a big change in the tax return. Remember to adjust you withholding.
Keep in mind that donations to individuals are not deductible:
IRS considers these items a gift. Try donating to your church or other non-profit and asking if it will make a donation to the needy person you had in mind. That way, you can obtain a charitable contribution.
If you receive Social Security:
Keep in mind that up to 85% of it can be subject to Federal income tax. You can request that IRS withhold Federal tax from Social Security. Thankfully, NC excludes it from income tax.
Review 401(k)/retirement plan contributions:
This is a great way to save for retirement and potentially lower your taxes during the years when you may be in the highest tax brackets. Increasing your contribution % slowly each year is a great way to work towards the maximum deferral without drastically impacting your take home pay in one year.
Call us at 336.885.4177