Just because tax season is over, doesn’t mean you should avoid thinking about it for 12 months.
We’re all having different reactions after submitting our returns: some of us are still in reeling because our liability was greater than anticipated. Others are joyfully planning ways to spend their big refunds.
Because so much of your money ends up in the government’s checking account, it’s best to consider legitimate ways of keeping more of it in your own pocket. Here are some tips to help you plan for a happy experience next April 15.
Are you receiving a health insurance subsidy? If so, make sure you monitor your income. Often times job changes increase your income. Your subsidy is based on your income at the time you applied. If your income goes up, it reduces the amount of the subsidy for which you qualify. If you do not contact the Health Exchange you will be paying back in extra subsidy you received. Over the last two years, we have seen clients that would have received a refund end up owing money back from the subsidy they received.
Unemployment. If you have recently lost your job and are receiving unemployment benefits, you will be required to pay federal income taxes on the benefits. We recommend that you ask for federal withholding from the checks in order to meet this obligation.
Installment agreement. If you were unable to pay your tax liability on April 18, you may request an installment agreement by completing and submitting an Installment Agreement Request. It’s important to determine why you aren’t able to pay your tax bill on time. Was it a one-time financial event that led to this problem? Or do you habitually find yourself owing and incurring penalties and interest? If the latter is the case, adjust your withholding or increase your estimated tax payments to cover your liabilities. The IRS is willing to combine an existing installment plan with a new one, but it does not take kindly to a third request if you already owe for prior years.
Big refund? If you enjoyed a big refund this year, consider this: The IRS had your money all year. Some folks view this as a forced savings account, and if interest rates were running higher, I would encourage discipline and suggest you open a savings account. Even so, why not take control of your own money? If you have direct deposit of your paycheck, you likely can request the funds be split between accounts. Why not adjust your withholding and fund a savings with the extra money?
Tax law changes. It seems as if tax law changes daily, so be sure to contact BATS Xpress to learn about any new tax laws that could affect your financial situation.
Shelter your income. Max out your contributions to your retirement plan at work, and work hard to avoid being caught short on funds in your declining years. If there is no retirement plan at work, open an IRA and fund it. A health savings account (HSA) is also another program to consider for optimizing your medical deductions above the line. BATS Xpress will work with your financial adviser to help you reduce your tax burden.
Stay Organized. While it’s tempting to shrug things off, now’s the perfect time to jump-start your organizational skills. It’ll save you the headache of frantically searching for documents next year.
- File – Create a folder where you toss receipts and other tax documents in it. Keep it all in one place. If you hate paper, invest in a scanner and save documents to your computer. Just make sure you have backups in the even of a computer failure.
- Document – While it’s tempting to push a receipt or document to “file later,” label your receipts immediately so you know what they’re for, particularly business receipts. Make a habit of writing on the receipts in the restaurant or when you get home. You don’t want to play the guessing game later on. There are many apps available for Androids and iPhones that will allow you to snap pictures of receipt and categorize them as well.
- Enter Data – If you’re a business owner, entering tax-related transactions directly in your Quickbooks as they occur will save you time in the long run.