Learn how you can build wealth and use the tax code to assist in your efforts…
The proper preparation and filing of your tax return is an important step in the upward movement of your net worth and is a key aspect of your wealth building efforts. Now is the time that you rise up and achieve more in your life and knowing a few tax tips can possibly lead to you flying higher.
With another successful tax season in the books TheWealthIncreaser.com thought that helping prepare you and others who desire more success in the coming tax seasons was in order. In this discussion TheWealthIncreaser.com will discuss how “preparing in advance” is a key step in filing your taxes and building wealth.
It is important that you realize that record keeping is an important responsibility whether you decide to file your own tax return or you hire a professional to do them for you.
If your taxes are not complex and you are computer savvy you may be able to file your taxes yourself.
If you make under $66,000 the IRS offers free filing if you qualify.
Other online services also offer free tax preparation as well. If you choose a free provider be sure to read the fine print and know all of your obligations going in—not after the return is prepared and filed.
You also have the option of purchasing tax software and doing your return yourself. Live chats and explanations are normally included in the software purchase.
The average cost to file a tax return is over $200 in most areas of the United States. In many cases it can be money well spent.
If you dread doing your taxes yourself consider a professional who knows how to complete the type of return that you will file. If you have schedule A entries, capital gains or losses, investment properties, business income and the like you may want to choose a highly competent tax professional as there are nuances and certain understanding that is possessed by those who do taxes on a regular basis and take the profession seriously.
Whether you decide to complete and file yourself or you decide to hire a pro, the following paragraphs will provide you with basic insight on how you can build wealth more efficiently by effectively using the tax code.
Maintain Good Financial Records Relating to Deductions
- Document non-cash contributions and donations
- Assign a value to each item you donate
- Document all of your medical expenses and mileage to and from your medical provider(s)
- Save all mail and correspondence that is marked “Important Tax Information”
- Organize all of your financial data
- Start an “IRA” if you or your loved one qualifies at the earliest time possible and keep a record of your annual contributions
It is important that you avoid common mistakes that many make whether they prepare their return themselves or use tax professionals.
You want to definitely maintain good mileage records as the mileage rate for 2018 is 54.5 cents per mile.
Don’t overlook any of your itemized deductions or potential itemized deductions as with the new law many have been eliminated–however you may still need to run the numbers to see if your federal and state refund amount or amount owed will be more or less beneficial to you–depending on the approach (itemized or standard deduction) that you take.
Be sure you know all entries that you can legally enter on schedule 1 and schedule A now–and in future tax years.
If you are a business owner and travel don’t overlook travel expenses and keep good records. You also want to be aware of a potential home office deduction that you may be entitled to take. Also document and keep records of all business related purchases whether they be office supplies or major assets such as machinery, computers, automobiles and the like.
Also, if you are not doing so contribute to your 401k or other retirement account as well as HSA, FSA and other tax advantaged accounts.
If you qualify consider a ROTH or Traditional IRA (income qualification and contribution limits apply). Of course, whether and how much you contribute will depend on your current financial condition, therefore it is imperative that you know how to manage your finances at an optimal level.
Student Loan Interest
You can deduct up to $2,500 in student loan interest annually on your tax return if you qualify. However if you are single and earn over $80,000, you would not be eligible for the deduction–which seems quite unfair–you borrow to pay your way through college and when you start earning decent money to pay the loan back you are penalized and not allowed a deduction on your tax return.
Outside of earning less (usually a bad option) or getting married (your income limit increases some) your options to qualify may be limited! Are those real options for you–probably not and a change in the tax code would be more appropriate–however by knowing the income limitation at this time–you can at least plan proactively or plan to avoid student loans altogether if you find yourself in a precarious position at this time.
If you are currently seeking higher education or you have dependents who are now seeking higher education you may be eligible for credits and deductions that could help lower your taxes.
You can also save for higher education in a tax efficient manner by utilizing a 529 plan, a prepaid tuition plan or other tax advantaged educational savings plans–including IRAs.
Itemized Deductions
Medical deduction limit in 2018 is 7.5% of your AGI and 10% of your AGI in the 2019 tax year.
You can no longer deduct moving expenses unless you are in the military.
Casualty losses are non-deductible unless in a federally declared area.
Unreimbursed employee expenses, tax preparation fees and other 2% miscellaneous deductions are no longer allowed on schedule A.
If you need to make changes on your tax return remember the 3 year rule (three years from the filing deadline–including extensions) form 1040X allows you to amend your return.
If you have not filed your return in the past three years and you are due a refund–file now as after three years you will no longer be eligible for the refund.
Always consider your overall “effective” tax rate–that means looking at your taxes from a federal tax point of view as well as state and city (local)—where applicable.
Investments
If you have investments be aware of the type you choose and the present and future tax consequences. If you have children or grandchildren consider setting up a 529 plan, an IRA or other tax favored savings plan for their educational and/or retirement future.
It is important that you are aware of how your “investment choices” affect your future and your taxes–and it is you who must gain the “right knowledge” that you need–to succeed.
You can set up an IRA for your child or your grandchild if they have income and by saving consistently and gaining an average rate of return you can set your heirs up for a prosperous future in a relatively painless way. However, it is important that you plan now and set up systems that allow you to do that and more.
In addition, you must insure that you are on track to meet or exceed the goals that you desire and you must also operate in a sound manner in all of the financial affairs in your life.
Conclusion
With many changes in the new tax law of 2017 many may feel uncomfortable tackling their own taxes.
However, in many cases your taxes may not be complicated and tax software can lead you toward an accurate and cost saving preparation of your taxes.
Under the Tax Cuts & Jobs Act the standard deduction has basically doubled for most taxpayers and personal exemptions are gone except in limited cases (now called a tax credit).
The tax rates were reduced for most taxpayers, the child tax credit doubled from $1,000 to $2,000 for children under 17.
If you own a business and had income you may qualify for the Qualified Business Income deduction.
In addition, you want to form the right type of business (sole proprietor, corporation, LLC, partnership etc.), pay your estimated taxes (January 15th–April 15th–June 15th–September 15th) in a timely and accurate manner, record your revenue and expenses accurately and stay in good standing with the IRS in a proactive way.
Be sure to keep a separate bank account for your business, separate credit card(s) for your business and avoid commingling your business and personal records including bank deposits and withdrawals.
Also, allocate your income and expenses in the appropriate categories so that you can see where your income is coming from—and how much you are paying out in expenses–and where!
Keep a mileage log in your car (vehicle) or use an automated system and log all business related miles as well as repair and maintenance expenses such as gas, oil changes, parking/tolls and other expenses in case you decide to use actual expenses instead of mileage.
A monthly profit and loss statement will help your tax professional at tax time (or yourself if you plan on doing your own taxes) and also help in planning your business now and in the future as you can use the data for employee staffing, inventory, maintenance and other areas of concern that are particular to your type of business.
In short, by previewing your tax position now–you can plan better for your future. It is the desire of TheWealthincreaser.com that this page has given you some added insight on how you can achieve more in your future and lighten your tax burden as well.
Now is the time that you use T P T & W B to achieve results that you can see!
All the best toward your tax saving and wealth building success…
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