Tammy Cardinale CPA
Director of Finance
6 Year-End Tax Tips to Prepare You for 2017 Filing Season Filing taxes last minute means you might miss out on opportunities for a better return. Get ready now for the 2017 tax filing season, and stop throwing money out the window. Advance planning allows you to get organized, complete your tax forms accurately, and potentially lower the amount of taxes you may owe to the IRS or the state of Louisiana.
The New York State Society of CPAs (NYSSCPA) is sharing six tips to help you prepare.
1. Get your receipts and other paperwork compiled and organized. When January comes, you do not want to be looking frantically for receipts from the summer of 2016. Eliminate anxiety by getting organized now. Round up all receipts and canceled checks, such as those from charities; check your latest brokerage statement for year-to-date gains or losses; make a checklist of accounts to keep track of the Forms 1099s, if any, when they arrive; and get medical receipts and insurance reimbursement forms in order. By doing this, it will be easier to write off business expenses, list charitable deductions and include all expenses that may have otherwise been forgotten.
2. Review any life changes that may have happened within the last year. Don’t wait to figure out how certain life changes – getting married, having children, buying a house or going back to college – will affect your tax status as well as your eligibility for certain tax credits/deductions, you’ll be giving yourself a headache you could easily avoid.
3. Get the full benefit of potential tax deductions. Since tax deductions can lower your overall taxable income, it’s important to know what you could be eligible for. Consider making an extra mortgage payment or even prepay state and real estate taxes before the end of the year to allow for an extra deduction.
4. Figure out what tax credits you could be eligible for. Maybe you thought tax deductions and tax credits are the same thing. They’re not. Unlike tax deductions, tax credits can directly reduce the dollar amount of taxes you may owe to the IRS so it is important to figure out these numbers in advance. If you qualify for $500 in tax credits and owe $1,000 to the IRS, you will only owe the IRS $500. Some of the most common credits include:
• The Earned Income Tax Credit (EITC), most commonly used by working people with low to moderate income. To qualify, you must meet certain requirements and file a tax return, even if you do not owe any tax or are not required to file. EITC reduces the amount of tax you owe and may give you a refund;
• The American Opportunity Tax Credit allows you to claim up to $2,500 on your tax return for the first $4,000 spent on qualified education expenses within the first four years of college;
• The Lifetime Learning Credit allows you to claim up to $2,000 for the first $10,000 that’s spent on qualified education expenses like tuition, fees, books, supplies, equipment, and room and board;
• The Child and Dependent Care Credit offers workers a tax credit that helps defray the costs of daycare or babysitting and;
• The Savers Tax Credit which allows low-to-moderate income taxpayers who are saving for retirement to claim 50, 20, or 10 percent of the first $2,000 contributed to a retirement account.
5. If you’re planning to donate to charity, do it now– Consider making a few extra donations before the calendar year ends. Remember that charitable contributions must be made to qualified organizations with a 501(c)(3) status. And get and keep the receipt. You’ll need it. Have used household items or clothes you can donate? Give them to a not-for-profit organization. And again, get a receipt!
6. Consider increasing your contribution to your retirement plans – If you have a 401(k), IRA, or other retirement plans, it may be a good idea to temporarily increase your contribution into them before year’s end. By doing this, it can help lower your taxable income. If you are earning $50,000 a year in taxable income and contribute $5,000 to your IRA and $5,000 to your 401(k) plan, that can drop your taxable income to $40,000, lowering the amount of money that can be taxed.