Accurate Tax & Bookkeeping Services provides 9 tips to help people manage their federal tax returns.
As tax time approaches, taxpayers are considering how to manage their federal tax returns. Some taxpayers are still familiarizing themselves with the Tax Cuts and Jobs Act of 2017, which has only been in effect for a short time.
The new tax law saw changes in a number of the following areas:
- State and local deductions were capped at $10,000.
- Limits were put on the deductibility of home equity debt.
- Estate tax exemptions doubled.
- Tax brackets changed.
In light of these and other changes, taxpayers should start early when plotting their course through the tax maze. Accurate Tax & Bookkeeping Services, an accountant in Brandon, FL, is providing 9 tips to help people manage their tax returns.
Tip #1: Double-check the paycheck
It took a while for the IRS to revise the withholding tables, so double-check paycheck stubs to confirm that the withholding amount is accurate. If sufficient taxes are not being withheld, there could be a reduced refund or even an amount to pay. If too much tax is being withheld, there will be a refund. For cash flow purposes, the withholding might be adjusted downward. The IRS tax withholding estimator is helpful for these calculations.
Anyone who fits into one or more of these categories should use the tax withholding estimator provided by the IRS.
- Two-income families
- People working two or more jobs or who work only part of the year
- People with children who claim credits such as the Child Tax Credit
- People with older dependents, including children age 17 or older
- People who itemized deductions in 2018
- People with high incomes and more complex tax returns
Tip #2: Determine who will do tax preparation and filing
Major life changes such as marriage, divorce, or starting a new business may mean that taxes will be more complicated. Hiring a CPA or other tax professional to prepare and file tax returns would be advisable. Waiting until the last minute could prove to be very costly as some tax professionals will increase their fees as the April 15 filing deadline approaches.
Tip #3: Update beneficiary designations
Beneficiary designations will not affect personal taxes now, but they do affect the taxes of heirs in the future. Having these details in place will help minimize the taxes that beneficiaries and heirs pay. Consulting with a qualified tax professional now could have a profound positive impact on generations to come.
Tip #4: Make maximum retirement plan contributions
Maxing contributions to a 401(k), 403(b) or other tax-deferred retirement account makes sense. Account contributions reduce taxable income for the year, which reduces the tax bill.
Tip #5: Beware of tax scams and fraud
With tax season rolling around, phone calls, emails, and text messages ostensibly from the IRS are on the rise. Do not respond to these efforts to make direct contact. The IRS only corresponds through the US mail unless a case goes to litigation. Beware of a tax preparer who promises a larger refund.
“Shopping a refund” to locate a preparer who promises bigger refunds could spell big trouble. Taxpayers sign their returns under penalties of perjury, and they are responsible for any incorrect information on the return, whether it is fraud or a simple mistake.
Tip #6: Consider “bunching” deductions in order to itemize
Itemizing is more difficult because the standard deductions have nearly doubled. Taxpayers lacking enough deductions to itemize take the standard deduction.
Bunching is timing expenses by moving deductible expenses into the same calendar year. Charitable donations, medical costs, property taxes, January’s mortgage payment are examples of expenses that can be “bunched.”
Tip #7: Take required minimum distributions or RMDs
Failing to take the required minimum distribution (RMD) by Dec. 31 will result in the individual being penalized 50% of the RMD amount. It is strongly recommended that an account holder enlist the services of a professional to ensure they are taking the correct distribution amount.
Tip #8: Consider converting an IRA to a Roth
A Roth IRA has significant tax advantages over a traditional IRA. First, withdrawals are not considered income for federal (and usually state) income tax purposes. Second, annual distributions are not mandatory. The assistance of an accountant cannot be stressed enough in this matter.
Tip #9: Never ignore the IRS
Taxpayers who do not file returns and owe taxes and taxpayers who file but do not pay taxes on time risk severe penalties. The IRS can seize assets if necessary. If an IRS auditor reaches out concerning incorrect information on a return or back taxes, respond in writing immediately. Make copies of all correspondence. Use only the U.S. Postal Service, since the postmark is a legal proof of timeliness. Consulting with a qualified tax professional is strongly advised.
For more information about tax preparation and bookkeeping services, contact Accurate Tax & Bookkeeping Services office by phone at (813) 655-9702.