The Green Sheet Online Edition
May 11, 2015 • Issue 15:05:01
Make tax season easier next year
Whew! Tax season 2015 is finally over. Tax returns filed, balances paid, refunds requested. Now let's rest until next year, right? Wrong. Now is the time to begin preparing for a successful 2016 tax season, including filing your taxes in a timely manner, taking all possible legal deductions and minimizing your tax liability.
The U. S. tax code is an extremely complex and detailed document with portions dating back to 1873, which resulted in the Revised Statutes of the United States, approved June 22, 1874, and effective as of Dec. 1, 1873. Title 35 of said statues pertained to internal revenue. Since 1873, Congress has revised, edited, changed and amended the code numerous times. In 1913, the code contained only 400 pages, while in 2013 the code contained 73,954 pages.
Given this complexity, what can you do to make the process of filing taxes easier? Here are a few steps you can take right now to help make the process flow more smoothly and to feel confident that you have done everything you can to maximize your deductions and minimize your liability.
Review and understand your 2014 tax return
Whether you prepared your tax return yourself or paid a professional tax preparer, it is important to know and thoroughly understand all of the components in your complete tax return. While the tax code is complicated, most small business returns are not overly convoluted and can easily be understood. If you hired a tax professional, schedule an appointment to go over your return in depth so that you have a thorough understanding of what you submitted to the IRS.
Ask questions. If you don't understand the answer, ask the question again. Understand what information was included in your income. Questions to ask include the following:
- Where were the figures for the income derived?
- Did you have income that was not taxable? If so, what kind and why?
- What deductions were allowed?
- What expenditures did not qualify for tax deductions?
- What deductions could you take if you had maintained the proper documentation?
- Are you maximizing your retirement contributions or is this an area where you can improve this year?
If you are a single business owner, using tax software such as TurboTax or Tax Act can help you prepare your taxes yourself. Also, there are free versions of tax software available online for those individuals who have minimal tax reporting. The purchased software products will walk you through each type of income to be sure you have not omitted anything and will list all of the types of expenses you can claim. The software is very user friendly.
Following are several actions you can take to keep your records orderly and accessible:
- Set up a master file to accumulate records and information needed to file the 2015 return. This can be a paper file or a digital file. Neat.com offers several desktop scanners designed just for organizing receipts and other business information.
- Create a master list of all information required for each year's tax return including names, dates of birth, and Social Security numbers of all filers and dependents, if any. Be sure to understand exactly who you can claim as a dependent.
- Keep a copy of last year's return for easy reference.
- Maintain information on all income, including date received, amount, payer and reason for the payment.
- File every invoice or receipt that could possibly provide an exemption.
- Keep a written record of all of your travel mileage.The system can be as simple as figures on a columnar pad or as complex as you like. Just be sure to keep all the details including date, starting mileage, ending mileage, reason for the trip, etc.
- The IRS describes federal income tax as a "pay as you go" tax. Employers withhold taxes from employee paychecks, and self-employed individuals pay quarterly estimated taxes. If you are self-employed, post on your calendar the dates your quarterly estimated tax deposits are due: – April 15, June 15, September 15 and January 15 – so you will make them on time. Remember, you pay a penalty if you do not make estimated payments or if you underestimate how much tax you owe.
- Schedule a mid-year appointment with your accountant or CPA to discuss changes from 2014 and things you can do for the current year.
For many years, efforts have been ongoing in attempting to rewrite the tax code, streamlining it, lowering rates, reducing deductions and exemptions, and eliminating tax breaks for favored groups. To date, these efforts have been unsuccessful, and disputes about updating the code continue. Suggestions include changing the system to a flat tax, a value-added tax system and a national sales tax.
On Nov. 13, 1789, Benjamin Franklin wrote in a letter to Jean-Baptist Leroy, "Our new Constitution is now established, everything seems to promise it will be durable; but, in this world, nothing is certain except death and taxes." So, until the system changes, take every step possible to prepare for next year's taxes.
SIDE NOTE:Tax information for small business
The IRS provides extensive information for small business owners on paying and filing income taxes at www.irs.gov/Filing/Self-Employed-&-Small-Businesses.
Topics listed on the website include:
- Electronic payment options
- Electronic filing options for business and self-employed taxpayers
- Employer identification numberBusiness taxes
- Estimated taxes
- Employment taxes for small business
- Self-employment taxes
- Reporting information returns
- e-File Form 940, 941 or 944 for small businesses
- Filing past due tax returns
- Reporting payments to independent contractors
- Deceased taxpayers – probate, filing estate and individual returns, paying taxes due
Vicki M. Daughdrill is the Managing Member of Small Business Resources LLC, a management consulting company. E-mail her at email@example.com or call her at 601-310-3594.
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