Saving the most on taxes boils down to a very simple strategy. Deduct all the expenses and claim all the credits you are entitled to. Beyond that just a few tips should help you minimize the pain and aggravation commonly associated with tax time.
Please note that this site is for informational purposes only, users should seek advice from competent legal or accounting professionals before making specific decisions.
- Record everything.
- Keep track of all business, medical, charitable and unreimbursed employee expenses on a regular basis. Pay particular attention to recording items such as mileage.
- Assume you will be audited. If you are, all your records will help avoid any additional taxes. If you are not, you will have at least saved yourself some aggravation trying to put all the numbers together at the end of the year.
- Know what is and isn't deductible.
- Accounting fees including all mileage and postage related to preparing and mailing your return is deductible.
- Commuting expenses are not deductible.
- If you need help, make sure that your accountant provides you with a year-end tax organizer listing deductible expenses.
- Know what income is and isn't taxable.
- Bequests, fellowships and scholarships, federal tax refund, gifts received, life insurance proceeds and workers' compensation payments are usually not taxable.
- Embezzlement proceeds, hobby income and jury fees are taxable.
- Take advantage of retirement plans.
- Be sure to identify all the options available, 401(k), IRA, Roth IRA, SEP, Keogh.
- Know the advantages & disadvantages of each option.
- Keep track of the latest tax changes - for example in 1998 Congress added new child credits, education credits, retirement options and changed the capital gains rates.
- In 2003 Congress changed the tax rate for qualified dividends and long-term capital gains - stay tuned to see what changes are made for 2010 and beyond.
- Compare to prior years returns.
- Checking an old return is a quick and easy way to find income or expense items you may have missed this year.
- Take advantage of timing.
- Accelerate or postpone income (capital gains, retirement distributions, deferred income, etc.) to lower tax bracket years.
- Accelerate or postpone deductions (business expenses, retirement contributions, itemized deductions, etc.) to higher tax bracket years.
- Bunch Miscellaneous and Medical expenses subject to AGI limitations to avoid losing deductions below limitations.
- Consider using tax software or a professional tax preparer or tax advisor to help make sure that you don't miss anything.
Please note that this site is for informational purposes only, users should seek advice from competent legal or accounting professionals before making specific decisions.