It seems like every year – along with deciding to finally get in shape and be a better friend – we make the resolution to start thinking more seriously about our taxes and what we need to do to help ourselves out. All too often, we think of what we could have done to help ourselves more if we had only started sooner. Well, this year, let’s make a plan early and, unlike our vow to lay off the jelly donuts, stick with it. Next year at this time you’ll be thankful you did!
There are a number of blocks you can use to build a solid tax foundation. It’s almost a certainty that you have a business financial consultant, so these are geared more to your (even your team’s) personal taxes.
Your charitable donations are often an important part of your identity. If you make regular donations, it’s a good idea to plan them and record them; making them automatic is the easy way to stay on track. For one-time donations, keep the receipts and/or make electronic copies.
Here’s a great idea – join an organization and become an active participant. Helping others is the best reward, plus I truly believe that your goodwill is returned to you many-fold.
Track your expenses to ensure you get all the deductions you’re allowed. Review your healthcare policy and make sure you are taking advantage of all of your benefits.
Taxes and fees
When it comes to property taxes, LLC filing fees, vehicle taxes, etc., be sure you’re tracking and including these as expenses so you’re filing accurate records and not being over-taxed.
Gambling winnings and losses
My state calls this the “Education Lottery;” some refer to it as a tax on the poor. Regardless of your opinion about its usefulness to society, if you participate, make sure you record your gambling transactions on your taxes.
These important documents are often available electronically – you should review them early in the year and plan for any changes, as those always take longer than expected.
Take a close look at your expenses – with the market rates at or near an all-time low, refinancing now might make sense and save you thousands of dollars. One thing to remember is that any refinancing or mortgage modification will certainly need your tax documentation and most (or all) of the aforementioned items, so staying organized might save you both time and money.
If you have rental properties, you need to keep up with your expenses (including any vacancies), as well as your income from them. Don’t forget taxes, insurance, improvements, as well as any other dollars spent or gained.
Filing and recordkeeping
Keep paper files of items you receive in the mail, and you can always print copies of electronic files just for a backup. Group similar paperwork together for easy access.
For electronic copies, just like the kids say, “There’s an app for that.” There are literally hundreds of apps designed to track your expenses by taking pictures of your receipts and filing them. You can keep copies on a USB thumb-drive or on the cloud.
The beginning of the year is a great time to look at your contributions and adjust to make sure you’re contributing what you want, and that it’s spread out evenly over the year.
If you did not fund your retirement account in 2020, you still have until April 15th, 2021 for contributions to a traditional IRA (deductible or not), or a Roth IRA.
If you have a SEP or Keogh and file an extension on your taxes, then you can wait until then to contribute to your 2020 retirement accounts. Keep in mind that the sooner you add to them, the more they will have an opportunity to grow.
You can still decide whether to itemize your deductions or not. The standard deduction amount depends on how you file your tax return. Sometimes, however, you can’t use the standard deduction. In any circumstance, the best thing to do is run the numbers and see which way will help your situation the most – itemized or standard deduction.
Always take into consideration such things as mortgage interests and property taxes, high charitable donations, uninsured losses from fire, casualty or natural disaster, and other factors.
Especially now during the COVID crisis, many of us are working from our home offices. If you have a second office from which you conduct shop business and that space is used exclusively for business, you can write off that portion of the house, including utilities, rent and insurance.
Consult your tax attorney, tax preparer or accountant to verify what you should be tracking and exactly what they need to best file your return. Electronic programs are available to help you with your taxes, but an experienced tax preparer can be worth thousands when helping you navigate the tax codes, proper forms and building a plan for the future. I know this because my mother is starting her 51st year as a tax preparer. She has prepared taxes for five generations of some families and has clients all over the country who fly back just for an appointment with her. Despite her arthritis, she continues to push forward to help people. Find someone like her and value them.
Be responsible and do a little research yourself, too; it never hurts to know more, and you might actually learn about deductions you can use. Be a true patriot, file an accurate tax return and pay your taxes.