Every tax season, there are at least a few of us who have some unwelcome surprises. Some discover they were not nearly as organized as they should have been, and can’t find receipts for items they wanted to write-off as business expenses. Others may discover that they made more income than they anticipated, and they owe additional unanticipated taxes.
There are plenty more unwelcome surprises, sometimes having to do with divorce or custody issues. Couples sometimes trade off who gets to claim a child as a dependent, and misunderstanding whose turn it is leads to confusion (and fighting).
If you own your own business, or just make some side income from consulting, you may find out that you owe taxes because you didn’t pay enough estimated taxes during the year. That’s a common problem that we see often with clients.
The best time of year to address these problems is right now. Tax attorneys, accountants and other financial professionals aren’t quite as busy as they are in the first and last quarters of the year executing year-end transactions, followed by preparing returns for clients, and the mistakes you made in 2014 are fresh in your mind. A few simple tips and tricks can get you ready for April 15, 2016.
Set up a good filing system
Buy an accordion file from an office supply store, label the tabs and start sorting. If you have a giant pile of receipts on your desk (it’s OK, we know, we’ve seen it before), file those into categories that can include:
- Restaurants (any food purchased while you were working)
- Entertainment (tickets for events you attended for work purposes or purchased as gifts for clients)
- Travel (airfare, hotels, car rental)
- Charitable giving receipts
- Healthcare receipts
- Mileage records
Particularly for charitable giving, you may find that receipts are e-mailed to you. Print those out and put them in the file, or put them in a separate folder in your e-mail. However, don’t trust electronic records. A computer crash can take everything, and you’ll be starting over.
Review 2014 problems now
Did you owe? If so, discuss with your tax professional and see what you can do to ensure you don’t owe again, or set up a system of automatic savings so you have the cash available to pay off the tax debt when April 15 rolls around.
Did you get a huge refund? Some people use that as their savings so that they can take a trip the next year or do a significant home repair. That’s fine if that works for you, but you should consider instead adjusting your withholding or your quarterly estimated tax payments so that you aren’t paying in so much all year around. You can still save up funds without letting the government borrow your money for free (i.e. you don’t earn interest on your refund).
Did you have a dispute with your ex over who gets to claim a child as a dependent? No better time than now to cement who will be doing so for the 2015 tax year. If you have custody issues to work out, tackle it now.
Did you intend to make a charitable gift but neglected to do so? If you have the funds, do it now, and be sure to get the letter you need as proof of the gift when you make the donation. Put it in your file. There is no reason to wait until the end of the year to make your gift.
For a few more tips, you can read this USA Today article that dishes out a few more simple strategies.
Fixing other problems
There’s a whole host of other things that can go wrong in a given year and mess up your tax planning. We’ve just covered the very basics here. Working with a qualified tax attorney can help you plan, and we recommend, always, a proactive approach. Contact a tax attorney before you sell an important piece of real estate, before you make a large gift to a non-profit, and before tax time rolls around again and catches you off-guard.
Annulment versus divorce matters at tax time, April 8, 2015
IRAs and Kentucky inheritance tax law, March 3, 2015