Save on Taxes Next April, by Planning TodayApr 12 • Categorized as Asset Protection,Other
by Jeff Schneider, CPA
The time of annual procrastination has arrived. My tax extension is in the mail. By now, I’ll make the bold assumption that most everyone has either shared intimate details of their lives with the IRS, or filed easiest of forms to delay the inevitable until October.
If you haven’t, please do so shortly after reading this message.
Knowing it’s too late to share wisdom on how to save taxes from 2011, let’s discuss what you can do this year to put yourself in a better position this time next year. Better yet, use a few of these and you’ll end up with a little extra cash in your pocket.
Refunds aren’t good
If you’re like me, the idea of a refund may sound appealing at first. There are dozens of stores that put on sales to acquire their share of the spending that occurs when a family receives their refunds. Suddenly big ticket items become more popular when the buyer feels ‘rich’ after receiving their refund.
Then you quickly need to think another level deeper.
A refund means you paid the IRS too much. You’ve trusted the most indebted nation in the world with thousands of dollars in hopes they’ll return it in April.
I truly hope that all of our readers will navigate the difficult economy and add to their income this year. Even if you double your income, you only need to pay estimated taxes on last year’s liability.
For example, if you had a $15,000 tax liability this year and you find a way to make $120,000 in 2012, you only need to pay $15,000 in taxes by December 31st, 2012.
If you’re a W-2 employee and you’ll receive a refund greater than $500 this year, call your HR department and see what options you have to reduce the withholding from each paycheck.
You’ll want to make sure you have the liquidity to pay the tax liability by April. In the meantime, take those funds and invest them in something that will pay a solid dividend. It’s an easy way to make sure the funds stay in your control.
Once you pay estimated taxes to the IRS, the burden of proof is on you to get the refund.
Beat the tax increases
Not only do I hope your income rises this year, I also encourage you to pull income into 2012 and defer deductible expenses into 2013.
The Bush tax cuts are back on the table again this year. They are set to expire at the end of this year. If nothing is done, tax rates will rise almost 20% for many tax brackets.
Of course, you haven’t heard anything about it from Washington DC. Nor will you until about November. It seems like long ago, but a very similar thing happened in 2010, an election year.
The political pundits in DC will spend the entire year focused on the campaign trail and nothing will be determined for 2013 tax rates until majority is determined in the House and Senate. Whether Democrat or Republican controlled, it will be very difficult for the extension to make it through.
As the on a dollar earned on January 1, 2013 has every indication of being taxed at a higher rate, try to earn it in 2012.
Try to sell your stocks with capital gains, earn your bonuses, put on a sale, or collect the extra payment in December rather than waiting.
Contrary to income, you’ll want to defer any deductible expenses to 2013. This will make sure your 2013 income is reduced, subjecting you to lower tax rates and a lower total liability.
Hold onto a losing stock, save your continuing education, conferences, or qualified work expenses an extra month or two and you’ll end up with more cash in your pocket.
Taxes and accountants are often obsessed with history. By doing so, you often end up receiving tax preparation services rather than tax planning services.
Take the planning into your own hands.
Changes in the tax code will no doubt be confusing, but even recognizing some of the larger trends will allow you to make better planning decisions. Simple understanding of the concepts will allow you to better manage your income when it counts…NOW. It’s too late if you think of these things when it’s time to file.
PS. Terry Coxon’s Unleash Your IRA enables people to plan investments for their IRA, rather than allow others to provide them a put them into a pre-selected menu of options.
Thousands have found the information valuable and taken action on more actively controlling their retirement accounts. See: PremierOffshore.com for additional information.