Tax Planning

We have all heard that “a stitch in time saves nine”. So in order to help you save some stitches, we have put together some information that will help you be prepared for the annual tax crunch. Planning ahead will save you time - even better - being prepared will save you money!

- Know what you expect to earn.

- Know what you expect to pay. The secret here is to only pay the IRS enough to avoid interest and penalties. Then pay the balance when you file your tax return. However, if you’re not good at saving, you may want to pay a little extra with each quarterly payment to keep your tax liability at a minimum at the end of the tax year.

- Accelerate or defer your deductions. In order to take the medical expense deduction it has to exceed 7.5% of you adjusted gross income and miscellaneous deductions must exceed 2% of your adjusted gross income. Under some circumstances it may make sense to prepay the orthodontic bill at the end of the year, to push you over the 7.5% rule, or postpone it until after the first of the year to get the maximum medical deduction in the following year.

- Always be prepared for an audit. Keep all of your records filed by year. Keep your personal and business records separated.

- Don’t forget to empty your closets by the end of the year and get a receipt for everything that you donated to charitable organizations. If you’re in the 28% tax bracket, those $500 worth of old clothes just saved you $140 in taxes.

- If you can afford to put $3,000 into a tax deferred retirement plan and you’re in the 28% tax bracket, you just saved $840 in taxes. Consider doing the same for your spouse.

- Don’t forget that tax credits come right off the tax owed. If you have a college student, the Hope Scholarship provides a tax credit for college tuition for the first two years that the student is in college. It is 100% of the first $1,000 in tuition and 50% of the next $1000 for a potential total of $1,500 in direct tax reduction. The Lifetime Learning Credit kicks in after the student no longer qualifies for the Hope Scholarship. It is 20% of up to $5,000 in tuition for graduate or undergraduate expenses.

- Don’t forget the child-care credit. Keep in mind however, that if you are taking this as a credit, the person that you are paying must report the revenue on their income tax return. This is sometimes a problem when you have a family member or teenager watching your children.

Paying attention to details throughout the year will save you headaches and allow you to be ready for the deadlines- and that is good business

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