It’s a new year! It is time to think of business and personal goals. It is time to look forward to new challenges and opportunities. And unfortunately, it is also the time to think of income taxes. April 15th (March 15th for those of us with LLCs or corporations) is not too far away. It is time to think about the receipts, the forms, the payments and the possible deductions.
It’s a lot to think about and can be quite overwhelming — but it doesn’t have to be. Here are five things you can (and should) do now to make this taxing time a bit more bearable.
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6 Steps to Take NOW for a Less Taxing Tax Season
1. Get Those W-9s and 1099s Filled Out & Filed
The 1099 is a form that must be filled out and filed for every contractor or vendor (unless they are incorporated) that you paid $600 or more during the past year. Your roofer, electrician, yard mower, etc. all must be reported to the IRS with copies sent to the contractor or vendor. And these 1099s have to be done by January 31st. To file these 1099s, you first have to get a W-9 form filled out by the contractor or vendor. The W-9 form provides you with their tax identification number that must be placed on the 1099. Be sure to keep this W-9 on file in case there is ever a problem in the future.
The W-9 forms can be easily downloaded in PDF format from the IRS website at IRS.gov. The 1099 forms are however a different matter. You have to use specially designed forms which cannot be downloaded. You can get them for free by writing to the IRS, but they usually run out and are very late at getting them out. You best bet is to go to your local office supply store pick some up — but hurry because they can sell out quickly at this time of year.
Do try to get these forms out as soon as possible. Your contractors and vendors cannot file their taxes until they have your 1099. Some of these folks may be expecting a sizable refund. Don’t make them wait too long for it.
2. Open a Self Directed Roth IRA & Contribute As Much As You Can
A self-directed IRA is a great wealth-building tool and tax shelter. With it, you can invest your retirement funds in real estate (among other things) and then watch them appreciate tax free. You can make yearly contributions to your IRA up to $11,000. And you can do that until April 15th of this year for the 2014 tax year, so you can still do something to reduce to reduce your tax bill.
Any contribution you make comes right off the bottom line of your income as far as taxes are concerned. This means you get to keep more of your hard earned cash and put it to good use for the future.
3. Sit Down With Your Tax Advisor (Even if it’s Just Yourself)
Plan out what will be required to get your taxes done this year. What are the deadlines? What forms are needed? Think about how much time will be required for both you and your tax preparer. How will you pay the bills? Build yourself a road map of what needs to be done to save you time and frustration later on.
4. Familiarize Yourself With the Necessary Tax Forms
You do not have to become an expert, but taking a bit of time to look over the various forms you are required to file can really help you and save you some of the money you pay someone to prepare your tax return.
How? For one thing you can begin to understand how the money flows with regards to income taxes, which is not always the way you might think. Where are expenses and income placed? How do deductions get recorded? How does all of this affect the bottom line and the tax you owe?
Secondly, if you understand the basics, you can help your tax preparer by having things prearranged in an orderly fashion so they do not have to take the time to do it and thus bill you for it.
Third, it will really help you to…
5. Get Your House in Order
If you have been putting your receipts in a shoebox, now is the time to sort it all out. I know that it is going to be a pain, but it is no use in procrastinating, as that will just make it more difficult and stressful. Resolve now if you are still using the shoebox method to do a better job next year!
6. Educate Yourself on Recent Tax Changes
There are numerous changes to tax laws every year. And now with the new healthcare laws, there can be some fairly dramatic changes. Make sure you do not send in more tax than you have to. I have found JK Lasser’s tax guides to be pretty effective and easy to read and understand.
Taxes are no fun, and believe me when I say I do not look forward to the beginning of tax preparation season. Unfortunately, you really cannot avoid them unless you want to go to jail. As much as I hate paying taxes, I think I would hate jail more. So take some time now, this month, and follow the tips outlined above to make the tax man take less of a bite this year.
Have you followed any of these tips before? What would you add to my list?
Let’s talk taxes in the comments section below!