By: Sharolyn Hockey – Tax Manager
Filing their income tax return is a chore most Americans dread. Once that return is filed, you probably stop thinking about your taxes, don’t you? But there’s no better time to start your tax planning. Now is the perfect time to organize your tax records and set yourself up for a less painful 2014 tax reporting process. Here are some tips to help you start to plan for this year’s taxes:
- Consider quarterly estimated tax payments. If you have income that is not subject to withholding, you may need to make estimated tax payments to avoid the assessment of penalties and interest. Examples of income that may not be subject to withholding are distributions from retirement accounts, Social Security benefits, and gain on the sale of certain investments.
- Plan ahead for life changes. Many life events can impact the amount of tax you owe, such as having a child, buying a home, or changing your marital status. Taxpayers may need to adjust their payroll withholdings or their quarterly estimated tax payments during the year when these events occur.
- Start your 2014 record keeping now. Getting organized early can help you later in capturing all the deductions to which you’re entitled. Sole proprietors in particular should start early, and they should already be recording 2014 mileage in the written log required by the IRS for the business mileage deduction. Taxpayers should also capture miles driven for medical purposes or for charitable activities. Create a place for your family to keep tax records during the year. Be sure to get a receipt when you drop off a noncash donation, and put it along with a description of the item(s) donated and their value in the designated place. Keep receipts for the cash contributions you make as well. Making sure your family puts tax records in the same place during the year will help avoid a frantic search for misplaced records come tax time next year.
- Keep records safe and stay organized. Put your 2013 tax return and supporting records in a safe place. Many taxpayers need a copy of their prior year’s return when applying for financial aid or a home loan.
- Keep up with changes. Tax laws change every year, and taxpayers need
to be aware of the changes that will impact their returns in order to plan appropriately. Taxpayers who don’t use a professional tax preparer need to pay particular attention to changes that will affect them. The IRS issues tips about law changes and many other topics three days each week during the summer—you can subscribe to receive them by email or get them at IRS.gov or IRS2Go, the IRS’s mobile app.
- Don’t ignore correspondence from the IRS. More taxpayers than ever are receiving notices from the IRS, many of which are computer-generated. If you receive a notice, do not ignore it. Be sure that you read it completely, and follow the instructions provided to respond appropriately, especially if you disagree with any change or adjustment proposed by the IRS. Getting help from the IRS, however, is harder than ever for US taxpayers. The severe budget cuts at the IRS became more evident to taxpayers who reached out for assistance during the recent tax season. Many callers got a recording advising that the call limit had been reached for the day and that they would have to call another day. Other callers simply couldn’t get through at all. To make matters worse, tax courts have ruled against taxpayers who relied on bad advice received from the IRS used to support a position on a return.
- Shop early for a tax advisor. A professional tax advisor can
assist with responding to notices, calculating estimated quarterly
income tax projections, and making recommendations based on your specific tax situation. If you don’t currently use a professional tax advisor but want to hire one, it’s best to start your search early. The IRS highlights the fact that taxpayers are responsible for the accuracy of their own returns, no matter who prepares them. Therefore, you should exercise care when choosing a tax preparer. For tips on choosing a preparer, go to IRS.gov.
Remember that laying a little groundwork now can have a big payoff at tax time next year!