Local Expert Tips from Account Sense:
1. It’s very important to file on time, even if you can’t pay. The IRS penalty for late filing is 10 times the penalty for late paying! It’s a good idea to get started on your taxes early if you want to minimize these penalties. Each of the penalties – late filing and late paying – can be up to 25% of your tax liability and that doesn’t include interest.
2. Small business owners have a lot of laws, rules and paperwork to sort through – as a new business, and ongoing. So, it’s very important that they have a team of professionals to advise them. Among those include: an attorney, an accountant, a banker, insurance agent, and financial advisor. Don’t let your neighbor or your best bud from high school be your source of good advice.
3. There are several credits available to qualifying individuals and businesses – many of which go unclaimed every year. 2 of the most common are the “American Opportunity Tax Credit” (AOTC) for tuition/fees/books and the Child/Dependent Care Credit for daycare costs, including preschool. The AOTC is up to $2,500 per student. The child care credit can be up to $2,100, as long as both spouses are working or going to school.
4. One very overlooked deduction is non-cash donations. This would include taking your unwanted clothing and household items to Goodwill (or other donation centers). You must get a receipt. You must determine the fair market value of your donation. Then, indicate the date, description and value on the receipt provided.
5. One question we often get is “how long do I need to keep my records?”. Tax returns should be kept forever. But, the documentation to support your taxes – like W-2’s, receipts and bank statements – need only be kept for 7 years. After that time, it’s ok to shred or otherwise destroy these documents.
6. The IRS will not send you emails or call you on the phone. The IRS writes letters to communicate with taxpayers. So, don’t respond to emails or phone calls that claim to be from the Internal Revenue Service. And, on that note, IRS letters are often computer generated. So, if you receive one that doesn’t seem right, please contact your CPA to review the information and help you determine if you owe what they say.