If you’re like most people, you find all the paperwork, time, and energy involved in getting your tax return sorted stressful and annoying, particularly if you work for yourself. It can also be very costly if you don’t take steps to get organized and find ways to reduce your liabilities. To help this year be different from the rest, read on for some tips you can follow to get ready for tax time.
Ideas for Reducing Your Tax Payment
Before you submit your information, look for ways to reduce your overall liabilities. There are numerous options, and it’s important to speak with your accountant to confirm what will work best for you, but it often pays to start by looking for costs related to your home that you can claim against.
If you’re paying off a mortgage, you can typically claim the interest you pay each year, as well as that paid on a home equity loan. The lender you have your loan(s) with should send you a form that you can use when completing your return.
Keep in mind that you can claim the interest on loans on properties besides your primary residence, such as a vacation home. If you own investment properties, you can also usually deduct expenses from managing these from the income produced, and then pay tax only on the remaining income.
If you invest in a low-income-housing credit partnership, this can also reduce your outstanding bill, because these arrangements give investors tax credits as incentives. Another way to reduce your payments to Uncle Sam is to claim real estate taxes as a deduction. If part of your monthly mortgage payments include an escrow amount for annual real estate taxes, then you can claim this percentage.
As well, you may have paid various state and local income taxes during the year, which should be claimed; plus you might find yourself with a tax deduction opportunity if your county or state charges a personal property tax. Usually this tax is added on automobiles, so check your statement from the collecting agency.
For something a little “out of the box,” consider buying film and TV production credits, which are available in several states around the country; or utilize the federal solar tax credit, a subsidy that offers solar farm owners and investors in these properties and related systems tax credits.
If you’re an investor in shares, look out for under-performing stocks which may be worth selling so you can harvest tax losses for the year – these will help you offset taxes on gains from shares which have performed well.
While giving back can bring you personal satisfaction, donating cash and goods to charitable organizations can also reward you come tax time. As such, this is another strategy to consider. If you make contributions valued at $250 or more, get an acknowledgement of this from the relevant not-for-profit stating the amount and that you didn’t receive anything in return. You can use this to claim the write offs. If your donation was smaller, you’re not required to get a formal receipt from the organization, but it’s best to get some sort of documentation to provide to the IRS later if needed.
Apart from cash, there are lots of different items you can donate to the needy. For example, you could donate a boat for a tax deduction, or an unused or older car; give away artworks, jewelry, other accessories, valuable rare books, and coins; or give away shares and other types of investments. As well, keep in mind that, while you can’t deduct the value of your time when you volunteer at not-for-profits, you can generally make a deduction on the miles you racked up driving to and from such locations. Take note of your mileage during the year in a logbook or app so you have documentation available.
Take Time to Plan and Get Organized
Of course, if you want to take the stress out of completing your tax return, and ensure you reduce your tax bill or increase your refund, you need to put a plan in place and get organized. Book an appointment with an advisor sooner rather than later so you can ask necessary questions, and find out about any new tax rules and regulations that will affect your claims. Things change all the time, so it’s vital to stay up to date.
As well, if you haven’t been filing documents carefully throughout the year, give yourself plenty of time to find all the necessary paperwork required for your return so you don’t miss out on making any claims. This covers things like receipts, bank account statements, credit card statements, loan statements, employee numbers, forms from employers, and more.
When you allow enough time, you can also do a lot of the work on your return yourself. This saves money when it’s time to get your accountant to look over things; if they’re not starting from scratch, their billable hours will be fewer.