Next Year Will Be Better

What individuals and small businesses can do now to make next year’s tax season less taxing

If you had to scramble (or are still scrambling) to get your 2014 tax return filed on time, give yourself a break and start right now to take steps to make next year’s filing run smoothly.
“Be proactive,” says Michelle Archambault, a CPA and senior tax manager at Hannis T. Bourgeois LLC. “Get some kind of personal finance software. If you keep up monthly, at the end of the year you don’t have all this paperwork to go through.”

Keeping organized, easily accessible records is one way to make tax season less onerous. Another is to keep in touch with your tax preparer during the year.

“Don’t wait until April to talk taxes,” says Matt Miller, a tax lawyer at Baldwin Haspel Burke & Mayer who says business owners need to think ahead. “By touching base early, you have time to take financially advantageous steps, such as making charitable gifts in a manner that will give you the best deductions. You can discuss whether buying machinery or equipment will allow you to take depreciation deductions, or figure out how to best offset your capital gains.”

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Miller also reminds self-employed clients to keep tabs on their estimated tax payments. “Make sure you are current,” he says. Other tips include:

– If you have unreimbursed mileage, document your auto expenses as you go. Don’t try to re-create a log.

– Investigate whether paying year-end bonuses can lower your small business income.

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– For older clients, make sure you are taking the required mandatory distributions from your IRA.

“Keep documents that reflect income you received and expenditures you’ve made.”
-Rob Wollfarth, tax lawyer with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC.
Photo courtesy Baker, Donelson, Bearman, Caldwell & Berkowitz, PC


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It’s especially important to get in touch with your tax preparer if your year included a significant life event, such as marriage, divorce or the birth of a child. These events trigger tax consequences you need to address in a timely manner. “The earlier we get the information, the more opportunity we have to do something to get the deduction,” Archambault says.

Take a good look at your withholding, too, says Rob Wollfarth, a tax lawyer with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. Getting a refund from the IRS isn’t the good news TV ads make it out to be. Instead, it means you’ve given the government an interest-free loan for an entire year.

“Clients are often uncertain about which documents to keep and which to pitch,” Wollfarth says. His advice? “Keep documents that reflect income you received and expenditures you’ve made.”

On the income side, watch your mail for appropriate W2s and 1099s. On the expense side, you should have receipts and invoices. “It’s particularly important if you sold property,” he says, so you can show the property’s original cost and what you sold it for.

If you have income from international sources (such as foreign accounts), Wollfarth says to pay attention to the additional reporting requirements placed on these accounts. Failure to do so can trigger significant penalties.

“Money that goes for taxes can’t be saved for retirement,” says Emmett Dupas, a wealth management advisor with Northwestern Mutual. He recommends making sure you are putting the maximum allowed into any retirement plans you have, such as 401(k)s or IRAs. “A company’s qualified plan is an easy way for employees to save, while reducing taxable income,” he says.

Only payroll deductions can go into these retirement accounts, Dupas points out. For those fortunate enough to inherit a good sum of money, he advises using it for living expenses, and then upping your payroll deduction to put that same amount of money away. The limit for 2015 is $18,000; those 50 and older are permitted an additional $6,000 for “catch up.”

It’s difficult to qualify for medical expense deductions, says Greg Booth, a certified public accountant with Postlethwaite & Netterville. Unreimbursed medical expenses have to exceed a threshold of between 7.5 percent and 10 percent of annual income – a number that’s usually hard to hit. Deductions for child care are easier to come by, he says, thanks to the child independent care credit on the federal income tax return. The credit can be taken if both parents are working and there is no income limit.

What lies ahead

Actions by Congress have made planning for 2015 taxes tricky, says Christian Weiler, a tax lawyer with Weiler & Rees. In late December 2014, a lame-duck Congress extended a whole raft of tax deductions retroactive back to January of that year. These included some 50 individual and business tax deductions and credits.

Will these expire at the end of this year, or will Congress extend them again, retroactive to January 2015? Weiler says that not knowing the answer to this question can make it almost impossible to plan well.

“I don’t think anything is going to change,” he says. “I presume it will be extended once again.”

The situation is even more complicated, he says, because many times policies the government wants to implement are pushed through in the form of tax savings or tax credits. He points to the Earned Income Tax Credit as an example. “It’s a great program with lots of benefits to people who need it, but very difficult for the IRS to administer,” he says. The onus is on the preparer to determine whether a client is eligible for the credit. Plus, the credit itself isn’t really a refund, in that it’s not necessarily a return of money paid in taxes.

The IRS is also charged with monitoring the provisions of the Affordable Care Act, referred to as “ObamaCare,” and taxpayers need to make sure they are in compliance with the law.
Booth says he’d like to see Congress pass some corporate tax reform. The United States has one of the highest corporate tax rates in the world, he says, and there is some bipartisan support to lower the corporate tax rate but expand the number of companies affected by it. “That would include getting rid of some specific deductions and credits that target specific industries,” he says.

Even though there is often a lot of rhetoric about “taxing the rich,” experts doubt the highest tax rate will jump much higher. Right now it’s 39.6 percent, which can climb to between 44 and 45 percent when you add in the self-employment tax. “I don’t see that going any higher anytime soon,” Booth says.

Another reform people clamor for is making tax filing less complicated. Again, experts doubt this improvement will ever happen. CPA Archambault says that when she entered the profession, the so-called Simplification Act came out. “Actually,” she says, “it made things a lot more complicated, and the complexity has just kept growing.” She says it’s the reason so many taxpayers have to turn to people like her to make sure they are paying their fair share and not a penny more. 



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