Most people only think about their taxes in April or in December as they are spending for the holidays. They are counting on or calculating their tax refund to get themselves out of debt. But did you ever think about tax planning? Me neither, until I finally visited a professional tax preparer that showed me that it is never too early to begin preparing my taxes. Here is what I learned and I hope it helps you too.
Income affects your tax return
I know you are aware of the tax brackets. However, do you know that your income (earned and unearned) can affect your income tax return? The income that you work for is called earned income and is taxed if you are an employee. But what about your unearned income? That is income that is not worked for but comes to you via interest or dividends. Did you know that you could place your money in tax shelters and IRA’s to reduce the amount of taxes that you will owe at the end of the year? I really had not thought of that. I did not even realize that I could take off deductions for my home-based business because I operate as a sole proprietor. Talk about a wake-up call. That’s when a friend suggested that I make an appointment to visit my local tax professionals.
Tax credits can affect your tax return
It seems like they change the tax code every year. I don’t know about you but, I can’t keep up with my crazy busy life and all of the tax credit changes. Tax credits can help reduce your tax liability and increase your tax refund. However, there are rules and exceptions to these credits and most people do not take that into account when they calculating out their personal tax return. I know I didn’t.
Tax deductions you do not know about can hurt you
I was able to deduct my mileage to and from work, but I missed out on the deductions because I didn’t keep my mileage records and gas receipts. If I knew about this then, I would have kept a mileage log and my gas receipts. It’s funny how something so small could have saved me well over $500 a year in taxable income. I know I feel like the fool, that is why I don’t want this to happen to you. Not only did I miss out on the travel deductions but I also missed out on the space I use for my home-based business. I was able to deduct a portion of my home, phone, cell phone, fuel, and internet costs. I missed out on these deductions and tax credits for years. Thankfully, I kept good household records and my tax preparer was able to send in amended returns and get me back almost $1,500.00. Can you imagine leaving that much money on the table? I almost fainted when they told me how much I overpaid due to a lack of knowledge in the tax deductions that I didn’t know I qualified for. My suggestion is to get your self-prepared past tax returns reviewed by a tax professional just to be sure you didn’t leave money on the table like I almost did.
I don’t know about you, but I have been preparing my own taxes until a friend suggested I see a professional tax preparer. I was so hesitant because I felt that I could do a good enough job on my own. However, I did hire someone to research on my past year’s returns and found out that I did not get the tax savings that I could have. That made me mad. I thought by using the proper tax software, I had received all of the deductions that I was entitled to. Wrong. I had not saved the most important receipts for my personal tax returns. Also, I did not know about all of the tax credits that I was entitled to. So I wanted to give you the same advice that my friend gave to me. Save yourself money and frustration and go make an appointment to see a professional tax service as soon as possible. Its never too early to begin tax planning.