It was Ben Franklin who said “there are two certainties in life, Death and Taxes”.
The IRS and Uncle Sam are working together to make sure that every American pays their due in taxes. We seem to get hit from all angles. Whether you’re a kid in school or a working adult, we see our checks getting smaller and smaller and wonder how we make it day in and day out.
We review our paychecks and try to figure out how much is being withheld from our pay checks. We freak out because we can’t seem to understand it, local, state and federal government deductions seem to take about half of our earnings. Let’s throw in there what we pay at the store each time we buy something as well as our property and capital gain tax on our investments, currently at 15%.
We spend our entire lifetime working and paying Uncle Sam it seems. The federal government will tell you that most of it goes to social security to pay for your retirement during your golden years. Let’s hope it’s still around by the time you retire. But, don’t count on Uncle Sam to bail you out. Read throughout this site to learn how to invest with a 401K Plan and a IRA
to secure your future and to minimize the amount withheld by the government.
Tax Savings Tips and Strategies
May organizations are now offering a few more tax savings strategies for employees. Please review the list below and get in contact with your HR rep and ask questions. Hey, it’s their job to keep employees inform, but let’s be honest who really reads those company wide e-mails? I know I’m guilty, are you?
In any event, read through the list and see if you qualify for one or more of those items listed.
1. Flexible Spending Accounts – Puts pre-tax dollars for medical expenses including dental bills, over the counter medication and other medical expenses. There is no set federal limit.
2. Dependent Care Account – If you have children or older parents that you care for look into the DSA. The maximum you can contribute to the account is $5,000. This is a great way to pay for daycare expenses with pre-tax dollars, but keep in mind, you will have to pay for daycare first, out of pocket. At the same time your employer is taking money out of your account and putting into the DSA. Once you have accumulated enough money and can submit for reimbursement of those funds. The form is simple for most organizations; you’ll need to have copies of your monthly bill as well as copies of canceled checks. You fill out the form and send with copies of your bills and checks. In a matter of days you will see the money deposited into your checking account. It uses your payroll information to deposit your check into your checking account if you have direct deposit. Check into this, I was a bit apprehensive at first, but with a folder to keep your stuff organized, it works very well.
You can use this pre-tax money for summer camps, babysitter and home attentant expenses. You won’t have to pay federal or social security taxes on this money, which is a lot better than an itemized deduction.
IRS Audits
Be aware that the Internal Revenue Service is after you. More than ever before the IRS is auditing more people than in previous years.
Audits occur when the IRS checks your return for accuracy. It’s a method for them to account for the shortfall of income from taxes. They claim a $350 billion shortfall per year.
No one knows for sure how the IRS determines who gets audited. To keep the IRS from knocking on your door read some of the things they look for when auditing returns.
High Salary
If you have a high six figure income then you might a good candidate for the tax man. The money more you earn the better the probability of you getting audited since the IRS figures that the odds of an error in your return is more likely since you have much more deductions.
Charitable Donations
Be careful here, the IRS is requiring more proof than ever before that you donated to your favorite charity. Canceled checks may not suffice. The IRS wants letters from the charity organization stating the contribution or a bank statement confirming payment to the charity. Most people do not give more than 2% of their income. If the IRS sees 10%, that raises a red flag. Be careful with property donations such as a car. If the write off is more than 5K then you’ll need an appraisal.
Neatness
If you do your return by hand (written) and it’s either incomplete or hard to read, the tax man may pull it out for further investigation. If possible do our return on a computer with tax software. The tax software will notify you that there are sections that are not completed and will prevent you from gong forward. Your accountant will most definitely have a program as well, if he doesn’t, fire him and get a new accountant.
Lastly, make sure you sign the return. If it’s not signed they will take a second look for additional omissions. Be neat and professional and you won’t have a problem.
Home Office Deduction
The IRS has strict rules in place for deducting home office expenses, but if you work from home a few times per week you should try to claim a deduction. Only if it’s in the convenience of your employer so, if you’ve been encouraged to work from home in order to save the company some money, you have a case, but if working from home was your idea, then forget it. In recent years a good portion of the US workforce worked from home and that number is increasing each year.
If you have your own business then you will qualify for the deduction if you work for yourself and use your home office exclusively for business purposes. You can deduct offices supplies, phone, internet, fax lines and square footage, but check with your tax advisor first. Keep detailed logs and receipts in an organized folder with pockets. Don’t throw everything in a shoe box.
Remember to file your return before April 15th of each year. Returns must be mailed to the Internal Revenue Service with a time stamp of April 15. Make sure you itemize your return since you may be eligible to get something back from dear old Uncle Sammy.
Comments