Anyone who has been paying taxes long enough will tell you that it is never a bad idea to talk to a tax professional about your unique tax situation. While it is not your job to stay on top of changes to tax laws and cost-basis reporting rules, it is theirs, which can save you time and money in the long run.
Below are year-end tax tips that can help out with your financial life:
Using last year’s tax return as a starting point, begin this year's process by updating some of the key inputs: your salary and other income, deductions and the dependents you'll claim. If you use tax preparation software, it's easy to run a quick estimate of where you stand. Alternatively, you can ask your accountant for an early read. If the initial estimate seems high, don't panic. Instead, get going on your taxes by taking these six simple steps.
1. Double-check your withholding. You want to pay the IRS its due but not a penny more. So make sure you're not having too much (or too little) taken out of each paycheck. The same holds if you make quarterly estimated tax payments.
2. Consolidate debt. Consider replacing credit card debt, which generally has a higher interest rate, with a lower-rate, tax-deductible home equity loan or line of credit (HELOC).
3. Account for refinancings. If you lowered your mortgage interest rate in the past year, you may now have a lower-interest deduction. Also, if you used any of the proceeds for something other than physical improvements to your home, that amount may be subject to the alternative minimum tax (AMT). Remember that points paid in prior refinancings that you didn't already deduct can be deducted in the year you refinanced again.
4. Prepay quarterly estimated state tax payments. If you're not likely to be subject to the AMT, consider paying your fourth-quarter 2013 estimated state income taxes (plus any estimated balance due) by December 31 so you can take the deduction on your 2013 taxes.
5. Prepay property taxes. Many counties bill taxpayers twice, in November and February. If you pay your February installment by December 31, you can take it as a deduction on your 2013 return. Again, watch out for the AMT, which disallows these deductions.
6. Avoid the AMT if you can. More taxpayers are facing the AMT, particularly dual-income homeowners who have children and live in high-tax states. If you're one of these taxpayers, try to defer payment of state and local taxes and accelerate income to the point where you're no longer subject to the AMT. Multiyear planning is a must so talk to a tax professional.
You should take the time to read the full article to get some ideas on what you can do for other tax aspects as well such as retirement, education and charitable giving. This may seem like an overly detailed article full of too many tips but in reality, this is just the surface for most business owners.
Do you have any tax advice to share with other business owners or maybe a CPA to refer for year-end questions?
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