Lester Bahr CPA, LLC
(484) 707-5934
Allentown, Pennsylvania
Enlightened solutions within your grasp
Another tax filing season has passed. You are breathing a sigh of relief thinking I am glad that's over. You probably don't want to start thinking about taxes again until next year. Well, as a CPA providing tax services in Allentown I can tell you that might not be in your best interest.
First of all, if you got a big refund last year, you may be feeling pretty good about that. But should you? Before you pat yourself on the back for your thrift, remember that you lost the use of your money and gave the government an interest free loan. Wow, that was very generous of you. The better idea is to have your employer adjust your withholding so that less is withheld in taxes with each pay cycle. Then, if you really want to set aside money into a forced savings plan, it’s better to do by establishing a bank or brokerage money market account and deposit the extra cash into that account where at least you will earn some interest. In general, with interest rates much higher today than they were a couple years ago, you can actually get a respectable return on your money.
On the other hand, if you were not so lucky to get a refund and in fact owed taxes, you also likely got socked with additional interest and penalties. Now, does that make any sense? No, it doesn’t. Whether you paid in taxes during the year or waited till year end to pay with the return is not going to change what your actual tax liability is, now is it? But, if you end up paying in more via interest and penalties, well, that’s just a senseless waste of money that could have easily been avoided. If you adjust your withholding so it covers this shortfall, you will not find yourself in this predicament next year.
How about IRAs and other retirement plan contributions? For some reason, people always wait until the last minute to put money into their IRAs. But the sooner you contribute the sooner it starts to grow tax sheltered.
Are you a small business operating as a sole proprietorship? It might be worth looking into becoming a corporation. The sooner you do this the sooner you can reap the benefits. And you may be able to reduce your overall tax liability. Keep in mind, that the ideal time to change entities is usually at the beginning of your new tax year.
If you are charitably minded, here's an idea. If you own stock or other assets that have appreciated in value, consider donating them instead of cash. That way, the organization can sell the stock and get the money, while you get a tax deduction for the fair market value of the stock.
Many people are running businesses out of their home. There are benefits of doing that, but be careful about taking the deduction for business use of your home. Although Congress liberalized the laws about who can take the deduction, there are still some “gotchas” you need to watch out for such as the taking away your ability to exclude 100% of the gain on sale of your home when you sell it. It's complicated. If this applies to you, you definitely need to seek out professional help. In other words, don’t try this at home.
Speaking of homes, if you are married and have lived in your home for at least two years, you can sell it for up to a $ 500,000 profit and not pay any tax. You don't have to buy a new one home either. If you are single, the same rules apply but you're only allowed a $250,000 profit.
Incidentally, anytime you buy or sell a home, be sure to give your tax preparer a copy of the settlement sheet for the transaction. There may be points, allocation of real estate taxes or other important items on there to help you at tax time.
The best advice I can give you is to remember how you searched high and low for that missing receipt and pulled your hair out trying to organize your records at the last minute. Well, resolve to fix that now. Get a good filing system to keep track of your income and expenses. The better organized you are, the less it costs and the less time it takes to prepare your taxes. Remember, shoeboxes are to store shoes in not receipts. If you dump a shoebox full of receipts on your tax preparer during busy season to sort out and categorize, be prepared to spend considerably more for the preparation of your return.
Finally to summarize, remember, good tax results start with good tax planning.
