As a taxpayer, your primary concern is likely to pay as little as possible this tax season. Now is a great time to meet with your CPA since the calendar tax year is about to end. Though preparing and planning your taxes can be a daunting task, considering a few smart moves will ease the burden both on your mind and your wallet. We’ve prepared some tips you can discuss with your CPA during this year end that may put you ahead of the game this season.
An important aspect of minimizing your taxes is timing. Realizing income and expenses at the right time can result in lower taxes. Consult your CPA to make sure these steps are right for you.
Timing Income
For business owners, it may be possible for you to choose to take income this year or next. If you had a high profit year, but know that next year will be less profitable, you can encourage customers to make payments next year to cut taxes this year. If you had low profits this year but plan on higher profits next year, you may want to collect payments this year. This is one example of how to most efficiently spread your income to lower your tax payment.
Tax Deductions
Businesses and Individuals will vary.
For Businesses: The most commonly forgotten deduction for businesses is mileage. If you use your vehicle to travel for business, each mile you travel is worth 56 cents for 2014. This deduction could lower your income by the thousands, therefore lowering your tax liability. If you use a portion of your home to complete your business needs, a home office deduction can give you a significant tax break. A portion of your home’s rent, mortgage, utilities and other expenses will be an indirect expense that can be used as a deduction. Painting, decorating and remodeling the office home office is considered a direct expense being 100% fully deductible. Other overlooked business deductions can include: first year expense deduction, continuing education, interest payments on credit cards, bank charges and local and business taxes and fees.
For Individuals: The most commonly forgotten deduction is also mileage. If you travel to doctor appointments and other medical needs, each mile you travel is worth 23.5 cents for 2014. Lodging and meals associated with medical needs should you have to travel away from home is also deductible. If you travel for charitable purposes, each mile you travel is worth 14 cents in 2014. These types of deductions could often add up resulting in less tax liability for individuals. Other types of forgotten deductions include: job-related moving expenses, charitable activities, property taxes for second homes, credit for child and dependent-care expenses (the dependent can be an elderly parent), job search and sales tax paid for big ticket items. Please consult with your CPA should you think you have any of these deductions that you could benefit from.
Timing Payments
To lower your tax bill this year, consider pre-paying loans if you are a business, (you will be able to deduct the interest paid on the loan, but not the principal amount), mortgages (same as the loans, interest amount is deductible but not the principal amount), insurance (if you are a business it is fully deductible, for individuals you might be able to deduct your health insurance premiums depending on the cost of the insurance and your adjusted gross income). Charitable gifts and donations are often deductible, so if you are considering a donation consult with your CPA to determine if it can be used as a deduction. Buying assets is another way to add to your expense at the end of the year if you are a business. The 179 deduction for businesses allows the business to deduct the whole cost of the asset in the one year, thus, lower the profit. Please be sure they are being put into use as defined by the IRS (your CPA will help you with this.) Finally, buying with credit cards will add to your expenditure without actually spending the money right now. You can make payments or buy assets now and add the money to your expenses, then pay off the balance next year.
These tips can be utilized to cut your taxes and increase your savings right now. Knowing when to act and when to wait can be a bit tricky. It is wise to consult with your CPA before implementing these measures, as they will help you maximize the effectiveness of this knowledge and will offer more information and suggestions for saving you money.
NOTE: Please note that this information is not intended to be tax advice. Wilson Law Firm, PLLC does not provide tax advice. Consult with your CPA.
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