SMART MID-YEAR TAX MOVES
Mid-year and mid-summer arrive on schedule every June 30th or so. Here are some smart tax moves you should consider in order to avoid a nasty 'April surprise' next year:
Check Your Withholdings
Employees should review their year-to-date tax withholdings and compare them to last year. There are many ways for errors or changes to creep up and cause either too much or too little tax to be withheld from your paychecks. It's a mistake to let an entire year go by and find out only when you file your returns that the amount of federal and Maine taxes withheld was incorrect.
See:
https://apps.irs.gov/app/withholdingcalculator/
Schedule a Tax Projection
As fall approaches business owners should schedule a tax projection from their accountant. This is another way to avoid an April Surprise. Further, a projection gives business owners the opportunity to take steps that will reduce taxes owed. Common tax-saving strategies include buying business vehicles and equipment and funding pension plans.
Review Estimated Income Reported to the Federal Health Care Exchange
Self-employed people who obtain their health coverage through the federal exchange should review the accuracy of the income estimate provided to the exchange. If taxable income exceeds certain thresholds then health insurance subsidies are phased out.
One of the most difficult phone calls I had to make to a client last tax season occurred when a small business owner who had coverage through the exchange ended up owing the IRS approximately $15,000. This nasty surprise happened because the estimated income he gave to the federal exchange was far lower than his actual income. As a result he and his family did not qualify for any subsidies and had to pay back, through their tax return, all the subsidies they received during the year.
The Affordable Care Act ('Obamacare') took two things that used to be separate, health insurance and taxes, and combined them.
All self-employed individuals getting coverage through the exchange should carefully monitor the accuracy of the income estimates they give to the exchange. These estimates determine the monthly subsidies credited towards health insurance premiums. Once per year, at tax time, actual income is compared to estimated income. Any excess subsidies must be paid back. See IRS Form 8962.
Self-Employed Truckers Must File IRS Form 2290
Self-employed truckers who own a truck with a gross vehicle weight rating of 55,000 pounds or more must file IRS Form 2290 by August 31. The form pertains to the heavy-use tax applicable to large trucks operated on federal highways.
Pre-Pay IRA Contributions
The IRS allows individuals to fund their Individual Retirement Account by April 15th of the following year. Thus, you could fund your IRA by April 15 and claim it as a deduction on your prior year tax returns. However, many people fail to budget for this payment. The best answer is to fund your IRA contribution weekly or monthly. You can setup automatic withdrawals from your bank account to do this. Prepaying your IRA ensures you don't miss out on this important deduction.
Be Pro-Active In Protecting Yourself From Identity Theft
Tax return fraud is the latest version of identity theft. Bad guys file fraudulent tax returns to obtain quick refunds and then disappear. Subsequently, the legitimate taxpayer files a correct return and then receives a notice from the IRS that two returns were filed. This is a classic sign that tax return fraud has occurred.
One monitoring tool taxpayers can use to protect themselves is to request a tax transcript from the IRS. Fill out the one page Form 4506-T and request a free transcript from the IRS that reveals what data is in their computers. The data on the IRS transcript should match the data you reported to them in your tax return. If not, corrective action must be taken immediately. Tax transcripts are the equivalent for taxes what credit reports are for monitoring your credit score. Form 4506-T is a highly effective and seldom-used tool to guard against tax fraud. And using it is completely free.
Monitoring your tax account is yet another way to prevent a nasty surprise.
While no one can travel faster than the speed of light, we can and should travel faster than the speed of reality. Think and plan ahead to create and protect the version of reality you want for yourself.
George Adams
Certified Public Accountant Master of Business Administration
Tel: (207) 989-2700 E-Mail: GeorgeAdams@IntelligenceForRent.com
450 South Main Street: The HQ of IQ
Brewer, Maine 04412-2339
©2015 Copyright George Adams CPA MBA. All Rights Reserved.
