I know it seems like the ink has barely dried on your 2016 taxes, but remember that the best time to plan for your taxes is 365 days a year. Now that summer is here, thoughts are probably turning to barbecues and beaches, not necessarily taxes. But now that we’ve reached the mid-way point of 2017, it’s the perfect time to review the financial and tax picture of your business or personal financial situation. Too often taxpayers wait until it’s time to file their returns to start thinking about taxes. Have you ever met with your tax professional and been told you could have lowered your tax payments if only you had acted earlier? Tax planning is an ongoing process and taking actions now can help lower your 2017 taxes, and for years to come. Here are some ideas to consider:
- Meet with your Tax Professional
Why wait until the busy tax season to meet with your tax advisor? Make a mid-year appointment when you’ll both have more time to discuss your financials. Most importantly, you’ll still have plenty of time to act on his or her suggestions this year.
- Take charge of your recordkeeping
To make the most of your personal or business tax deductions, you’ll need accurate, comprehensive records. If you haven’t been keeping track of your personal or business expenses, get caught up now. And if you find yourself struggling with this administrative task, look for a new solution whether it’s offloading the task to someone else, investing in a technology solution (like a receipt scanner), or dedicating 30 minutes each week to expense tracking. You’ll be grateful come tax time.
- Plan for retirement
If you haven’t done so already, take time to set up a retirement plan or reassess your contributions. Contributing to a 401(k), IRA, Keogh, simplified employee pension (SEP), or other retirement plan is an essential way to plan for your future and reduce your taxable income. The specific rules, contribution limits, and deadlines vary by plan. Make an appointment with your Tax Professional to discuss the best retirement option for you or your business.
- Be aware of your responsibilities in the Sharing Economy
It has never been easier to earn a few extra dollars – driving for a ride-share company, renting a room through Airbnb, selling items on eBay, or starting a small business. These endeavors often result in tax obligations people often overlook. If you were paid money, it is taxable income. The IRS considers you to be self-employed and you will be responsible for paying taxes on your net profit. It is important for you to keep track of your income and expenses.
- Review your estimated tax payments or withholding
Now that we’ve hit the midway point, review what you have had withheld from paychecks or what your business has made year-to-date and your forecast for the rest of the year. Then assess your estimated tax payments if you have had unusual situations such as capital gains to avoid underpayment penalties or overpayments (you could be doing more with that money). Adjust your final two estimated tax payments as needed.
- Small business owners should reevaluate their business entity
Many small businesses start out as sole proprietorships or partnerships, but then eventually transition to another entity. For example, if your business is not incorporated, you may want to consider incorporating to shelter you from some financial risk and possibly save money on taxes. Sometimes an entity is formed with one income target in mind, and you might need to reconsider the entity for a different income level. Failing to adjust your business entity for your revenue can be a costly mistake. Discuss the different legal entities with your Tax Advisor, so you can determine the right entity for your situation and the right time to make the change.
- Review your health coverage
Whether you have an employer sponsored plan, an Obamacare plan, or are covered in other ways (or not), it is important to review your options to maximize your tax opportunities. Many companies offer either Flexible Spending Accounts (FSA’s) or Health Savings Accounts (HAS’s) that are underutilized tax savings opportunities. Premiums for self-employed or self-insured individuals may be deductible along with out-of-pocket expenses. Reviewing your options now will help you decide what to do when enrollment time approaches in October. Now is the perfect time to manage your taxes and make informed decisions about the rest of the year financial plan. One last piece of advice: If you are planning on doing something unusual financially, like selling stock or property or cashing in a 401(k) to buy a new home, check with you tax advisor first to determine if there will be any tax consequences. It is usually too late to undo something that may have had a simple solution to avoid additional taxes once it is done.
Anita Jean is an Enrolled Agent and owns Financial Fitness in Krugerville, TX. She can be reached at 940-365-3115 or 5099 US Hwy 377, suite 400.