Category: Tax Planning

How to Reduce Your Tax Bill in 3 Simple Steps

No one wants to find themselves in a position where they owe additional taxes. This is why we always encourage individuals to think about their tax liability throughout the year. By keeping your taxes in mind, you can take strategic actions like pre-paying your next mortgage payment or making a charitable donation. While these are just a couple of examples of how you can reduce what you owe in taxes each year, they do have a deadline. If you don’t take these actions in a timely manner, you won’t be able to reap any benefits until your next tax filing.

Although we encourage staying on top of your taxes all year, we understand that life gets busy. There are plenty of situations where people have plans to take strategic actions, only to end up missing the deadline. If you find yourself in this situation and wish there was something you could do to help offset what you may owe in taxes, you’ll be happy to learn that there a few options available. Even if you find yourself getting down to the wire with the deadline to file your taxes, here are three different ways you can still reduce what you owe:

1. HSA Contributions

Does your health coverage include an HSA-eligible health insurance plan? If so, making a contribution as a family or individual can provide you with a deduction worth several thousand dollars. Just keep in mind that there have been quite a few changes in recent years as to exactly which plans are eligible, which is why it’s always a good idea to check with a tax professional first.

2. American Opportunity Tax Credit

If you’re the parent of a college student, the American Opportunity tax credit is a break you won’t want to miss. It’s worth up to $2,500 per eligible student for the first four years of college. The reason you can claim this credit even when time is coming down to the wire is all you need is a Form 1098-T, which will provide the EIN you need to include on your return.

3. (SEP) IRA Contribution

Whether you work for a company or are self-employed, you can reduce what you owe in taxes by making an IRA contribution. If you are self-employed and file an extension, you can make your contribution up until your return is officially filed.

At Donohoo Accounting Services, we understand the stress that can go along with planning and filing taxes. That’s why we offer tax planning and tax return preparation services. If you want to work with a team that has over two decades of tax experience, call us at 513-528-3982 for a free consultation.

 

The Best Ways to Reduce Your Tax Prep Bill

Working with a reputable professional to file your taxes can save you a lot of time. It can also save you money. However, plenty of people worry that they’re going to end up paying more than they want for tax prep services. While the savings you’ll get from working with someone who understands all the nuances of the tax code will almost always exceed the fee you pay, we want to take things a step further and share some tips on how you can keep your tax prep bill to a minimum:

Avoid the Temptation to Procrastinate

Tax season is a very busy time of the year. Tax professionals have a lot of people coming to them for help. So if you go to your CPA with a huge pile of documents that aren’t organized, chances are you’re going to be charged a higher fee due to the extra amount of work that’s involved. You can prevent this from happening by committing to staying on top of all your tax documentation throughout the year instead of trying to rush and bring it all together as the filing deadline is ticking down.

Create a System for Documentation

The reason so many people do procrastinate with their taxes is they think dealing with all the documentation is a major hassle. Even though it can be a little complicated, it doesn’t have to be a huge burden. The key is creating a system for how you’re going to keep all your documentation. Whether that involves physical folders or scanning your documents into a piece of software like Evernote, picking a system that works for you and then sticking with it will make a huge difference.

Check in Throughout the Year

Once you decide on your system for managing your documentation and then start using it, you’ll want to review how everything is going every few months. If you realize that something isn’t working as well as you expected, don’t hesitate to tweak your approach right away.

Get Rid of Documents You Don’t Need

This is an example of what you can gain by checking in throughout the year. You may discover that some of the documents you kept aren’t actually important. If that is the case, don’t keep them in your system. Getting rid of clutter will make it much easier for everyone when tax filing season comes around.

Whether you want our expert help filing your tax return or want to get a jump on things by working with us on tax planning, we’re here to help! Simply give us a call at 513-528-3982 to arrange a free consultation.

 

5 Things You Need To Know About Filing Taxes As A Freelancer

 

There are many advantages to being a freelance professional. However, filing your taxes can present a major challenge. If you are lucky enough to be a freelancer that works for a single company or client, then filing your taxes might be a breeze. But if you work for numerous companies and individuals throughout the year, then filing your taxes can potentially be a downright nightmare. In that instance, you might consider hiring a professional to do your taxes for you. Here are 5 things you should know about filing your taxes as a freelancer:

 

1. You Must Report All of Your Income (Even If You Don’t Get a 1099)

As a rule, employers are only required to send out 1099-MISC forms if they paid you more than $600. Just because they don’t send you a 1099, however, doesn’t mean they won’t claim those expenses on their taxes. It’s important to keep track of every dime you earn, even if you don’t get a 1099 from someone you worked for. If you don’t have detailed, accurate records, it will probably cost you far less in the long run to just claim a bit more than you actually earned and pay the tax on it than to under-report what you earned and open yourself up to a potential audit.

 

2. You Don’t Have to File If You Made Less Than $400

If you freelance as a “side-gig” and made less than $400, you don’t have to file taxes as being self-employed. In addition, you are allowed to claim certain business expenses for being self-employed. If you subtract your legitimate business expenses from what you earned and come out with less than a $400 net profit, then you also don’t have to file self-employment taxes.

 

3.) You Will Be Required to Pay “Extra” Tax On Your Income

A regular employee working for a regular employer automatically has certain taxes taken out of their paycheck, such as Social Security, Unemployment, and Medicare. In addition, employers also pay half of their employee’s Federal taxes. As a self-employed person, you are both an employee and employer, which means you are responsible for paying both portions of those taxes.

 

4. Home Office Expenses

If you have a dedicated area in your home designated as a home office, you can claim a portion of expenses like rent (or mortgage and property taxes if you are home owner). Cleaning supplies and other miscellaneous items may also be eligible. However, you can only claim these expenses if the area is solely used as an office. Also keep in mind that claiming home office expenses requires filing out a longer form, so if you are a full time freelance professional with a home office, you might consider hiring a tax professional like Donohoo Accounting Services to prepare your taxes for you.09

 

5. Tax Professionals Can Be Especially Helpful to Freelancers

Filing your taxes as a freelancer can be a major strain and take away significant time from doing what you do best. Donohoo Accounting Services can help you get a maximum return with a minimum of stress. Remember, a phone call is free, so consider giving us a call today at 513-528-3982 and let us tell you how we can help you!

Tax Planning for Major Life Transitions

When Benjamin Franklin famously wrote about the certainty of death and taxes, he may not have realized that that these two aspects of American life would later become important elements of financial planning.

Estate and tax planning are not the most enjoyable topics of conversation. However, they are essential in terms of anticipating certain situations that could become costly. Estate planning is related to the efficiently managing money for individuals who are approaching retirement and want a smart way to distribute their assets to loved ones when they pass away. Tax planning involves various methods to reduce tax burdens, particularly in relation to major life events like marriage, divorce, childbirth and going to college.

Many taxpayers are not aware of the potential deductions, deferments and credits that they can take advantage of at certain points in their lives. Here are some examples:

 

Walking Down the Aisle

Most couples believe that getting married means a lower tax liability, and this is true to a certain extent. However, couples who earn incomes that are higher than the national average may end up paying more taxes when their status is “married filing jointly” than other couples who could actually benefit if they file separately. There may be other reasons when filing separately makes sense, such as when one spouse faces tax or child support arrears.

 

Childbirth

The joy of welcoming a baby into the family is shared by the IRS in the form of certain tax deductions and credits. Unfortunately, many taxpayers who are not aware of these benefits forego claiming them.

 

Going to College

Taxpayers who seek higher education are rewarded by the IRS in the form of educational tax credits, as well as tax-free investment and savings accounts. There are certain income limitations that may preclude educational tax credits, and thus it makes sense to conduct tax planning in advance.

 

Dissolution of Marriage

Aside from the obvious change in filing status, getting divorced may bring about certain tax implications related to child support payments and alimony. Individuals who retain child custody could face greater economic burdens even as they receive financial support from their former spouses. For this reason, it is important to investigate potential tax liabilities before the divorce decree is entered.

 

Retirement

When American taxpayers retire, holding on to every income dollar becomes a serious economic priority. Personal savings, retirement accounts and Social Security income can be taxed under certain circumstances. Even moving to a more affordable Latin American or Caribbean nation for retirement does not leave U.S. taxpayers off the hook. The best way to approach retirement taxation is to start planning now.

In the end, tax planning is something that more people should look into before any of the aforementioned events take place. If you would like to learn more about how tax planning can help you save money and take greater advantage of available tax credits, contact the tax professionals at Donohoo Accounting Services in Cincinnati by calling 513-528-3982.