Tax time can be a busy and stressful time of year, but it doesn't have to be. By keeping your business and personal accounts separate and knowing when to get professional help, you can reduce a lot of the stress associated with tax time, but beyond that, there's even more you can do. Keep these five tips in mind.
1. Understand Your Personal Deductions
A bit of knowledge can go a long way to reducing your stress levels. If you're an employee filing an individual tax return, you have two main choices when it comes to deductions—you can claim the standard deduction or itemized deductions.
As of 2016, the standard deduction for an individual is $6,300. This number gets higher if you are married or have dependents. You don't need any special receipts or records. The itemized deduction is a bit more complicated. Essentially, it is the total of all the deductions you are allowed to take personally, and if the total isn't more than your standard deduction, you should stick with the standard.
Itemized deductions include interest on mortgages, charitable contributions, and state and local taxes. They also include a range of extra expenses such as medical expenses, union dues, work uniforms, IRA custodian fees, and a few other odds and ends. With these miscellaneous expenses, you can only claim the part of the total of each category that exceeds 2% of your income.
2. Know Your Business Deductions
Just as it's important to understand your personal deductions, it's even more critical to understand your business deductions. If you are a freelancer, a landlord, or a small business owner, the IRS considers you a business owner for tax purposes, and as such, you get to write off your business expenses.
You need to know what these are so that you can track them through the year. Basically, business expenses include any necessary and usual expenses to run your business. For instance, if you're a landlord and you buy a carpet cleaning machine to use in your units, that's a business expense. Payments for consultants, marketing costs, and office supplies are also business expenses. To brush up on the list, you may want to check the IRS's site once a year for updates.
3. Don't Leave It All Til the Last Minute
Whether you're filing personal, business taxes, or both, you shouldn't leave it all until the last minute. Set aside some time on a regular basis to go through your receipts and organize your paperwork. Doing that in small increments throughout the year will save you the headache of doing it all in April.
4. Pay Quarterly Taxes or Double Check Your Withholding
Filing your taxes can be stressful enough, but facing an unexpected tax bill can be even more stressful. If you are an employee, double check your withholding with your boss. That is basically a number that tells your boss how much income tax to withhold each year. You can update your withholding by filing out a new W-4 form.
If you are self employed, make sure to submit quarterly taxes. You can make payments based on last year's tax assessment, or you can use Form 1040-ES to help you estimate.
5. Hire a Professional
Finally, to truly reduce your stress levels, you may want to get a professional to help you. Tax preparation professionals can advise you on which expenses to track, and they can help you organize your existing records.
Most importantly, they can help ensure that you minimize your tax liability by claiming all the deductions and credits for which you are eligible.
To get help with your tax preparation needs, contact Bell Financial Services Ltd today. We work with individuals and businesses, and we also offer loans to help you meet your financial goals.