By Nathan Vinson, attorney
English, Lucas, Priest and Owsley, LLP
This time of year is nice, isn’t it? It’s warm and pleasant out, and maybe a little bit more laid back at work. Tax time is behind you (yes!) and it’s not time to think about next year’s taxes.
OR IS IT?
Well, we hate to break it to you, but yeah, it is time to think about it NOW. It’s July. More than half of the year is gone. If you haven’t set up a good filing system for your receipts and other tax-related information, you need to – and soon. If you’ve got a giant pile of paperwork and receipts, hey, you’re not alone – but don’t let this linger.
Our best tip is not to try to tackle it all in one miserable day. Take 30 minutes a day to tame the pile of paper. Set up a good filing system first – an accordion file works well – and put that paperwork in it a little bit at a time. You’ll have that tackled in no time! (Ok, maybe not, but you have to do it anyway, so might as well think positively.)
Receipts should include:
- Restaurants (any food purchased while you were working or traveling for work, keeping mind you can only deduct 50 percent of the value of a “work meal”). Ink fades fast on receipts, so we recommend making copies or taking photos of receipts as backup.
- Entertainment (tickets for events you attended for work purposes or purchased as gifts for clients, but don’t go too crazy with this and attract the attention of the IRS). The same 50% limitation applies.
- Travel (airfare, hotels, car rental)
- Charitable giving receipts, especially letters acknowledging the gift you made and that you received no benefit from the gift (unless, of course, you did)
- Healthcare receipts
- Mileage records
Then, think through what was awful about tax time last year. Here’s some things that hang many people up that you may want to address now:
- Claiming a child as a dependent. If you are divorced or share custody of a child, settle this as soon as possible so this is clear at tax time.
- If you received a gift or gave someone a gift, be sure the basis of the property is well documented. If the property is later sold, you’ll need a record of basis so that the IRS doesn’t successfully claim that you owe tax on the entire amount of money received on the sale. See this previous post on exchanging gifted property for more background.
- Adjust your withholding. If you’re having a great year and making lots, good for you! Just make sure you’re withholding enough taxes so that you won’t owe lots when next April comes. If you’re self-employed, be sure you are paying enough in quarterly taxes to cover the extra income.
- Make charitable gifts. Why squeak your gift in at the last second when you know how much you want to give and who should get it? Get a letter acknowledging your gift, file it and hang on to it for tax time.
- Saving for retirement. If you plan to fully fund your IRA this year, take a look at your projected income and ensure you’ll have the cash to do so. Put some in now if you have it.
- Saving for college. If you plan to put money into an Education IRA or 529 plan, go ahead and get started. In some states, contributions to college savings plans are tax deductible.
More taxes, more problems
This blog post just covers the very basics of tax planning. There’s a lot more to tax planning than this, and we’re happy to help you if we can. Great planning is your biggest asset at tax time, and getting started now will make your life so much easier April 2017.
What to do when you get a letter from the IRS, March 29, 2016