If you didn’t begin creating year-end tax plans before last December 31, it could be worth your while now to start gathering together all your documentation and get organized. The Internal Revenue Service started accepting tax returns as of Tuesday, January 19, though you could have prepared a return on paper or with tax software and submitted it earlier. The IRS wouldn’t accept such returns until the 19th however.
Filing early helps to lower any likelihood that you will be the victim of tax fraud, since an individual would have to submit a return with a fraudulent refund amount before your arrives—but early filing requires that everyone do their part. If you haven’t collected pay stubs all year, you must wait on your employer to send you W-2 and 1099 forms. These forms don’t have to reach taxpayers until February 1, which nearly ensures that you will be behind the pack at the outset of the tax season.
Admittedly, there are a few extra days for you to file this year. The 2015 return deadline is Monday, April 18, rather than the typical April 15 date due to the fact that Emancipation Day is being celebrated in Washington, D.C. on April 15. Moreover, since Maine and Massachusetts are celebrating the battles of Lexington and Concord on Patriots Day that Monday with the Boston Marathon and a Red Sox game, the deadline in those states is Tuesday, April 19. That all said, the point is you want to avoid being among the masses rushing to the Post Office on the last day for filing. Jonathan Medows, a New York-based certified public accountant, knows the truth of this point all too well.
“You get a lot of people in this situation.” Medows said. “ I get a lot of these last-minute calls, but unfortunately I’m really only handling the current clients and taking care of them, because there are always a lot of last-minute issues that come up—making sure their stuff is e-filed, making sure extensions are e-filed.”
The IRS has seen its budget slashed nearly 20% in the last five years and has scaled back audits from 1.4 million in 2013 to close to 1 million last year. In the truly unlikely event that you’re audited, both the state tax board and the IRS tend to go a lot easier on people who didn’t receive their 1099s or misplaced them than those who simply withheld them outright.
Deductions and Credits
This is also a good time to decide whether or not you’re going to itemize your return. Scott Stavin, a CPA and tax principal at Friedman LLC in New York, notes that itemized deductions are really a year-round concern that taxpayers typically forget about until the last minute. For instance, if you’ve made any kind of charitable contributions, it’s time to round up those receipts.
“We’re always reminding clients to remember cash charity as well as clothing or household items that they may have contributed,” says Stavin. “Clients should retain and forward to their accountants the documentation.”
CPA and enrolled agent Anthony Criscuolo of Palisades Hudson Financial Group in Fort Lauderdale, Fla., also reminds taxpayers the importance of deducting casualty losses from thefts, storms, earthquakes, car accidents and terrorist attacks. Casualty and theft losses can be claimed as an itemized deduction on Schedule A – Itemized Deductions, but you are required to subtract $100 from each casualty or theft event that occurred during the year after you subtracted any salvage value and any insurance or other reimbursement. You determine your deduction amount then by adding up all these amounts and subtracting 10% of your adjusted gross income from that total.
“Don’t overlook unusual deductions or credits—sometimes even a car crash can be deductible.” Criscuolo says. “These deductions are often overlooked because they can be taken only once in a while.”
In the meantime, you may also be eligible to deduct moving expenses if you moved as a result of your current job or a new job. In addition, payments you made for private mortgage insurance (PMI) or expenses you incurred because you adopted a child are deductible as well. It is little deductions such as these that can add up to significant savings when you treat your tax return as a yearlong project.
In particular, it’s helpful for self-employed taxpayers or business owners to put a strategy in place at the start of the year rather than waiting until next tax season. Create a specific file for business receipts and store them there all during the year. If you won your own business, maintain a separate checkbook and credit card for the business and keep all pertinent records for those accounts.
“During the year is when we can really talk to clients and do the proper planning to minimize their short-term and long-term tax liability,” says Scott Stavin. “With clients who pay quarterly estimates, we’re talking to them at least once a quarter.”
Anthony Criscuolo says nearly everyone can contribute to their IRA if they haven’t yet filed their 2015 tax return, are eligible and haven’t maxed out this year’s contribution. You can even set up a new IRA by April 18 and make a maximum 2015 contribution of $ 5,500, or $6,500 for people 50 and older. If you’re single, or married but neither you or your spouse is covered by a retirement plan at work, you are eligible for a full IRA deduction regardless of your income. If you or your spouse are covered by a retirement plan at work, that will limit your deduction somewhat.
Simplified Employee Pensions (SEP) IRA, SIMPLE IRA, and cash balance plan contributions are helpful for the self-employed, but can also reduce the adjusted gross income (AGI) of all taxpayers. You also won’t be taxed on any amount from these funds until you have withdrawn something from them. If you are self-employed and do not have the cash available to contribute by April 18, you can get six additional months to make a contribution. If you pay any taxes due by April 18 and apply for an automatic six-month extension to file your return, you can still make 2015 contributions as late as Oct. 18.
“Retirement contributions are valuable for people in all tax brackets—especially for the affluent who are paying the highest tax rates,” Criscuolo says.
Let Advise LLP help you meet your personal and/or business financial needs. Call us at (323) 934-2462.