It’s That Time of Year Again
Can you believe that we’re heading into the new tax season already? It’s time to dig out those receipts and start filling out your tax return. These days you can use online video chat technology and can get tax advice from a credentialed income tax preparer from your home in Fort Worth or any other US city.
Don’t delay – you must file your 2019 return no later than the 15th of April 2020.
Get started now and avoid the stampede of last-minute filers in April.
In this post, we’ll give you tax tricks that you need to know before you begin to complete your forms.
We’ll look at the legal tax breaks that you can use to reduce your overall tax bill. Why pay more tax than required by law?
As any money management professional will tell you, it makes no sense to pay extra. Why? For the same reason that it’s better to have a light company with no deposit arrangement because you don’t earn interest on the money.
Any financial planning advisor will tell you the same.
The IRS will give you a refund eventually, but you won’t earn any interest on that money while it waits. It’s one of these little ironies when dealing with the IRS—when you owe the organization money, it wants it (yesterday), and if you don’t cough it up in time, you face interest and penalties.
When it comes to refunds, things work differently, though. We’re not here to discuss refunds, though—we’re here to save you money.
One Note Before We Start
If your tax situation is complicated, it’s better to contract a tax preparation specialist to deal with it. Savings in taxes usually offset the cost of the consultation.
Lower Your Taxes and Save A Bundle with These Tips
Pay Money into Your Retirement Account
Most retirement funding calls for deposits by the 15th of April each year. Some funds allow you to apply for an extension to October and still reap tax benefits for the 2019 tax year.
You can garner even more value by adding to the fund as early as possible.
Saving $5,000 annually for twenty years gives you approximately $100,000. If we assume that you earn 8% interest per annum, you should earn $147,000 in interest—that is the power of compound interest.
Pay Your Estimated Deficit Upfront
Avoiding an underpayment penalty is crucial, so:
- Pay the whole of the previous year’s liability, or
- 90% of the amount owing in the current year.
Underpayment penalties are steep.
You’ll also be liable for interest on the amounts owed, so it’s better to pay upfront a few days before the deadline. In the meantime, put the money into a savings account to earn some interest so that you can put it to work before it’s gone.
Itemize Each Deduction
Filling in the standard deduction might save you a bit of time, but it’s not going to save you money.
It’s especially important to do this if you’re:
- A homeowner
- A resident of a high-tax area
Examples of deductions include:
- Interest on your mortgage
- Charitable donations
- The costs of running a home office
Be sure to read up on the rules regarding the deductions, as the IRS is strict on these parameters. Home offices, for example, need to have the space designated for business to apply.
Fill in all the Details for Your Dependents
You must provide the tax numbers of any dependents.
Children normally need a social security number. If you’re divorced, only one parent may claim the children as dependents for tax purposes.
Use a Tax Assistance Program if You Qualify
You can qualify for a tax assistance program if you:
- Earn under $56,000 a year
- Are disabled
- Aren’t able to speak English well
Speak to the volunteers involved with the following programs:
- VITA: Volunteer Tax Assistance
- TCEL: Tax Counselling for the Elderly
Know the Rules of the Gig Economy
If you have a side hustle, you have to report the income.
Depending on the type of work you’re doing, you may be able to claim legitimate expenses. An Uber driver, for example, may be able to claim for fuel.
Check the IRS’s Gig Economy Tax Center for more information.
Don’t Try to Cheat the System
Claim for legitimate deductions only and don’t fudge the numbers. The IRS is bound to pick up the discrepancy sooner or later. If it catches you out, there are stiff penalties and possible jail time.
File on Time
Finally, the best tip we can offer you is to file your taxes ON TIME.
Make sure that you’ve prepared everything and that you’re ready to go in advance of the deadline. If you’re due a refund, file immediately. If you have money to repay, hold on filing until closer to the due date.