Tag: tax

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.

 

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.

Don’t Pass Up the Earned Income Tax Credit

Anyone who works should see if they qualify for the Earned Income Tax Credit. While the EITC is most often associated with families, it can still work for certain people who are single and don’t have children. The reason it’s worth looking into this credit is it can reduce the taxes you owe. In fact, it will be refunded even if you don’t end up owing any taxes. Given that more than twenty percent of the people who are eligible for this credit fail to claim it (with single workers who have no children being the largest demographic within this group), looking into this topic is something that can pay off for you in a significant way.

 

2016 EITC Income Limits and Credit Amounts

As mentioned above, both single and married taxpayers may qualify for the EITC. The income limits we’re going to cover apply to both earned and adjusted gross income. This credit is available to an individual with no children who makes less than $14,880. The limit goes up to $39,296 for one child, $44,648 for two children and $47,955 for three or more children.

For a married couple filing jointly with no children, the limit is set at $20,430. It goes up to $44,846 for one child, $50,198 for two children and $53,505 for three or more children. Both individual and married filers can only have investment income of up to $3,400.

The amount of the EITC depends on how many children a filer has. This credit starts at $506 for those with no children, then increases to $3,373 for filers with one child. The maximum EITC for two children is $5,572 and $6,269 for those with three or more children.

 

A Quick Note About Delays

Because of the PATH Act, early filers who claim the EITC or Additional Child Tax Credit may experience a slight delay in getting their refund. For a full explanation of this issue, be sure to read our previous post – New Federal Tax Law May Affect Some Refunds Filed In Early 2017.

 

The Simplest Way to Check and Claim the EITC

If you have any questions about your eligibility for this credit or have concerns about making a mistake in claiming it, Donohoo Accounting Services can help. With over two decades of experience, our tax return preparation service will take care of checking your EITC eligibility, calculating the exact credit amount and ensuring all necessary information is filed out to claim it. You can also easily get in touch with our office by calling 513-528-3982.

 

Adjusting Your Withholding If You Receive a Large Refund

Although the experience of getting a large tax refund can be quite nice, many people don’t realize that it’s not optimal. The reason is receiving a large annual refund means someone is actually missing out on a larger total amount of money.

The simple explanation of why that’s the case is if you consistently receive a large refund, it means too much of what you make is being held out of your pay. So even though people often find getting a large refund convenient because they’re able to put it towards a large purchase or paying off a specific debt, it’s important to remember that this money belongs to that individual. By letting the IRS hold it for most of the year, people are turning over the opportunity to earn any interest from it.

 

The Why and How of Adjusting Your Withholding

A simple exercise for seeing the impact that adjusting your withholding can have on your monthly income is to take your most recent tax refund and divide it by twelve. That figure will give you a general estimate of what you could add to your monthly take-home pay. While you do eventually get the total amount back in the form of a refund, receiving it over the course of a year provides the opportunity to invest or at the very least earn a little interest from a savings account.

If you decide that it makes sense for you to adjust your tax withholding, you may have an opportunity if your employer asks about this issue in December or January. But even if they don’t, you can make a change at any time by filling out a new W-4 and then handing it in. The rule of thumb for anyone who consistently receives a big refund is to increase the number of personal allowances. And if you want to make this adjustment because you consistently end up owing taxes, decreasing personal allowances is generally the best way to go.

Since finding the right balance can be a little tricky, you may want to use a withholding calculator to help you out. It’s also worth noting that other times to review your current withholding are when you or your spouse get more than one job. The same is true if you have children, get divorced, buy a home or get married.

Knowing if you need to adjust your withholding is just one example of the type of issue that can directly affect your finances. If you want to be sure that your tax situation is fully optimized, be sure to take a look at our tax return preparation service.