Show Me the Money
Jan 30, 2012 07:43AM
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The tax deadline is fast approaching, and if the Internal Revenue Service is hanging onto some of your money it’s time to get it back!
Even if you end up owing money to the government, there are ways to reduce your liability.
“The best thing someone can do is be organized,” says Sherif Boctor, a certified public accountant and managing principal at PSG Certified Public Accountants in Roseville. Boctor says keeping track of and organizing receipts is the best way to make sure nothing that might be a tax write-off slips through the cracks and gets lost – costing you money on your tax return.
DEDUCT YOUR DONATIONS
Charitable donations are often overlooked, but can help lower your tax liability. “Lots of things people may have taken to Goodwill or another charity over the year can be written off,” Boctor says. “They need to make sure they place a value on it, and get a receipt.” Some items are no longer tax-deductible including used underwear, and those who put cash in a church donation box can’t claim it anymore, unless they have a receipt. “The best thing to do is to write their church a check,” Boctor says.
While many think of April as the time to get a maximum tax return, Boctor says it’s better to plan ahead and make the return as small as possible. “If you get a big tax return, you’ve given the government an interest-free loan for a year.” Adjusting deductions means more money in the bank throughout the year, and you can collect interest on that.
Another tip to save yourself money, and something to keep in mind for next year: prepaying mortgages and property taxes. “If they pay in December, that interest can count as a deduction,” he shares. “If they’re prepaying property taxes, it needs to be done by December 10.”
WORK IT OUT
Boctor says 401K funds offered by companies take money out of the paycheck before taxes; if the company matches a percentage, make sure to put in that amount. Flexible spending accounts, if offered by an employer, can also make items such as parking fees come out of pre-tax dollars, which saves money. “People who are self-employed can deduct any equipment they buy for their business and deduct home office space,” shares Darla Colson, CPA, MST, with Gilbert Associates, Inc. in Folsom. Colson says another area where self-employed people can benefit is the SEP-IRA. Small businesses or independent contractors can save up to 20 percent of their income into an IRA and make that contribution by April 15 if they file on time, or by October 15 if they extend their return.
GO TO THE PROS
Boctor says hiring a tax professional is a better way to save more money, in the end. Simple forms, where the person filing merely has a W-2, work well with tax preparation software, but more complex tax filings usually end up with errors – to the benefit of the government. Plus, the pros can inform you of extra credits you could possibly qualify for, including the Lifetime Learning Credit. “If people have college-age students, the Lifetime Learning Credit is one of the best credits you can get, because it’s dollar for dollar against your taxes,” says Colson.
Even if you owe money and can’t afford to pay, Boctor stresses the importance of filing a return. “The IRS will work with you if you owe them money. What they don’t want are people to avoid filing,” Penalties are typically capped at five percent of the money owed, and they reach that mark in five months if no return is filed. If a return is filed but not paid, the penalties accrue much more slowly.