One of the most common questions I get asked as a CPA who deals with taxes on a regular basis is “how can I be sure I don’t have to pay at the end of the year?” Although I am the kind of person who tries to make my tax burden to the government as close to $0 as possible, I understand the thrill of the refund… found money, so to speak. With only a month to go until federal taxes are due, it may be too late to implement some of these tips for 2011, but 2012 is almost 25% done (yikes), so there’s still plenty of time to get your information in shape for next year!
- Keep impeccable records. If you take clothes to Goodwill or donate a nice bottle of wine to a silent auction, keep track of what you donated. Non-cash charitable contributions are just as valid as cash ones. With used goods, you simply have to assign a value based upon the market retail value of the item. Most places won’t do this for you, but a quick browse through the store (or on the Internet) will show you how much other used sweaters are priced. Similarly, if you drive for a charitable event, keep track of your mileage — it can be deducted as well.
- Know your local regulations. Personal property taxes (such as for your automobile or boat, if you’re lucky enough) are deductible if they are ad valorem (that is, based on the value of your property). If they’re just a flat rate, they won’t be deductible. Take a look at your car’s registration next time you pay, and if the tax is value-based, put that in your “tax” file for the upcoming year.
- Give credit where credit is due. If you have a child, pay dependent care fees, or have someone in your home taking a college course, be sure that you apply for all eligible credits. Similarly, if you are in a low-income situation, investigate the earned income credit. If you meet the requirements, you can get back up to $5,800 in 2011.
- Take advantage of what the IRS has to offer. If you want to check out your withholdings and make sure you’re not setting yourself up for a big bill at the end of the year, take the time each year to enter your information into the IRS’s free withholding calculator. With just a recent pay stub and a copy of your most recent tax return, you can figure out how to adjust your payroll to achieve the desired result.
- Don’t be afraid to bring in the hired guns. Taxes are tricky, and they get trickier by the year. Often hiring an accountant who specializes in taxes is worth the investment, especially if you have significant investment income, own your own business, or have better things to be doing with your time than sorting through obscure tax code.