Saturday, October 4, 2014

12 Smart Tax Moves to Make This Fall / Getting your taxes in shape before the year's end will save time and money when you file your return.

Teresa Mears for US News World Report writes:  Tax-filing season is months away, but the time to start planning is now. Until the end of the year, you have time to take steps to significantly cut your tax bill.

Start by pulling out last year’s return and evaluating what will be different when you file for this year. If you made more money, perhaps you want to contribute more to a 401(k), donate to charity or buy tax-deductible business equipment by the end of the year.
If you own a small business, had a major life event or face different financial circumstances than you did a year ago, fall is a good time to seek professional advice. You may be able to take steps to improve your tax situation before the end of the year.
“I highly, highly, highly recommend meeting with your tax preparer every quarter if you can afford it,” says Kelly Phillips Erb, a columnist and tax attorney in Pennsylvania. “It’s better to have that conversation now rather than in April when you can’t do anything about it.”
If you don’t have an accountant or would like to make a change, this is the best time to find one. After filing the last individual tax returns, which are due Oct. 15, accountants and other tax preparers head into a less busy season. That means they have time to talk to potential clients or offer analysis and advice to existing clients.
“If you’re thinking about changing tax professionals, now is the time,” says Meisa Bonelli, managing partner of Millennial Tax, which provides services to home-based business owners and entrepreneurs in New York City. “You don’t want to be looking for a tax professional in January or February.”
Many small business owners wait too long to find the right accountant. “We always suggest to our clients when you start earning about $75,000 a year, start looking for a professional that specializes in your industry,” Bonelli says.
Here are 12 tax issues to tackle before the end of the year.
Catch up on quarterly tax payments. People who are self-employed or receive income that is not subject to withholding are supposed to make estimated tax payments. If you pay too little, you could be slapped with a penalty. The sooner you send the money, the smaller the penalty.
Decide who takes the children or other household members as dependents. If you share custody of children with an ex-spouse or partner, or you share responsibility for supporting another relative, only one of you can deduct that person as a dependent. This is also the case for children and the Earned Income Tax Credit. Do some math and figure out what makes sense for your situation.
If you don’t have insurance, apply for an exemption. Those who did not purchase health insurance this year face a tax penalty, unless they meet some of several exemptions, says Lisa Greene-Lewis, a certified public accountant and TurboTax tax expert. To complete your tax return, you’ll need an exemption number, which you can get from the Health Insurance Marketplace, she says.
Check your Affordable Care Act subsidy status. If you underestimated your income and received too much subsidy, you may have to pay it back. If your income was less than you estimated, you may get a subsidy via your tax return. If your circumstances have changed, you can make changes now at the Health Insurance Marketplace.

Use the extra money in your flexible spending account. In most companies, you can carry up to $500 into 2015, but you don’t want to leave any additional money in your account. Make sure you understand the rules of your company’s plan. “Evaluate your expenses this year and look ahead to what you expect to spend in 2015 and see whether to adjust your withholding,” Greene-Lewis advises.
Consider whether to accelerate or reduce income. For some taxpayers, it may make sense to prepay your mortgage and real estate taxes and incur business expenses in 2014. For others, paying those expenses in 2015 may be more advantageous. The only way to make those decisions is to calculate where you are financially this year and where you expect to be next year. “There’s no cookie cutter for who should accelerate and who shouldn’t,” Bonelli says.
Offset capital gains with losses. If you sold stocks at a profit, you can reduce the amount of taxes you owe if you sell other stocks at a loss.
Talk to your accountant. If your small business is growing, or if your financial life has grown more complicated, consult with an accountant before the year ends. “It’s always better to do it when they have time to talk to you,” Erb says.
Add to your retirement contributions. Have you contributed the maximum to your 401(k) or IRA? Stepping up contributions now may cut your tax liability when you file next year.
Don’t forget state and local tax obligations. Many states are making changes to their tax structures, Erb says. North Carolina, for example, has a number of tax changes going into effect for 2014 returns. Some cities also require self-employed residents to pay taxes. “People don’t tend to follow state and local as much,” she says.
Make sure you’re treating your part-time business as a business. That includes making quarterly tax payments or having extra money withheld from your paychecks to cover those profits. If you’ve been doing your own taxes with software up to this point, you might want to at least meet with an accountant for advice, Bonelli says.
Give to charity. Donations of cash or goods to qualified organizations can cut the tax bill of those who itemize. You need a written record of charitable contributions of more than $250 and an appraisal for those worth more than $5,000.