Now is the Time to Start Thinking About Year-End Tax Moves

With year-end just around the corner, it is time to think about those last-minute actions you can take to improve your tax situation for 2017. Year-end tax planning is probably something you will want to deal with before the holiday season is in full force.

There are numerous steps that can be taken before January 1 to save a considerable amount of tax. Not all actions recommended in this article will apply to your particular situation, but you will likely benefit from many of them.

Maximize Education Tax Credits – If you qualify for either the American Opportunity or Lifetime Learning education credits, check to see how much you will have paid in qualified tuition and related expenses in 2017. If it is not the maximum allowed for computing the credits, you can prepay 2018 tuition as long as it is for an academic period beginning in the first three months of 2018. That will allow you to increase the credit for 2017. This technique is especially helpful when a student has just started college in the fall.

Roth IRA Conversions – If your income is unusually low this year, you may wish to consider converting some or all of your traditional IRA into a Roth IRA. The lower income results in a lower tax rate, which provides you an opportunity to convert to a Roth IRA at a lower tax amount.

Don’t Forget Your Minimum Required Distribution – If you are over 70.5 years of age and have not taken your 2017 required minimum distribution from your IRA or qualified retirement plan, you should do that before December 31 to avoid possible penalties. If you turned 70.5 this year, you may delay your 2017 distribution until the first quarter of 2018, but that will mean a double distribution in 2018 that will be taxed.

Advance Charitable Deductions – If you regularly tithe at a house of worship or make pledges to other qualified charities, you might consider pre-paying part or all of your 2018 tithing or pledge, thus advancing the deduction into 2017. This can be especially helpful to individuals who marginally itemize their deductions, allowing them to itemize in one year and then take the standard deduction in the next. If you are age 70.5 or over, you can also take advantage of a direct IRA-to-charity transfer, which will count toward your RMD and may even reduce the taxes on your Social Security income.

Maximize Health Savings Account Contributions – If you become eligible to make health savings account (HSA) contributions late this year, you can make a full year’s worth of deductible HSA contributions even if you were not eligible to make HSA contributions earlier in the year. This opportunity applies even if you first become eligible in December.

Prepay Taxes – Both state income and property taxes are deductible if you itemize your deductions and you are not subject to the AMT. Prepaying them advances the deductions onto your 2017 return. So if you expect to owe state income tax, it may be appropriate to increase your state withholding tax at your place of employment or make an estimated tax payment before the close of 2017, and if you are paying your real property taxes in installments, pay the next installment before year-end.

Pay Tax-deductible Medical Expenses – If you have outstanding medical or dental bills, paying the balance before year-end may be beneficial, but only if you already meet the 10% of AGI floor for deducting medical expenses, or if adding the payments would put you over the 10% threshold. You can even use a credit card to pay the expenses, but if you won’t be paying off the full balance on the card right away, do so only if the interest expense on the credit card is less than the tax savings. You might also wish to consider scheduling and paying for medical expenses such as glasses, dental work, etc., before the end of the year.

Take Advantage of the Annual Gift Tax Exemption – You can give $14,000 to each of an unlimited number of individuals without paying gift tax each year, but you can’t carry over unused amounts from one year to the next. (The gifts are not tax deductible.)

Avoid Underpayment Penalties – If you are going to owe taxes for 2017, you can take steps before year-end to avoid or minimize the underpayment penalty. The penalty is applied quarterly, so making a fourth-quarter estimated payment only reduces the fourth-quarter penalty. However, withholding is treated as paid throughout the year, so increasing withholding at the end of the year can reduce the penalties for the earlier quarters.

There are additional factors to consider for a number of the strategies suggested above, and you are encouraged to contact this office prior to acting on any of the advice to ensure that you will benefit given your specific tax circumstances.

Jéneen R. Perkins is a freelance accountant and consultant serving entrepreneurs, families and small businesses. She prides herself in being a Freelance Accountant, Fluent in plain English”.

Survival tips for the 2018 Tax Season

 

Every year we have clients who feel like their taxes are a mythical land of mystery. As if they are heading into uncharted territory. There are clients who are just overwhelmed, period. No matter how you may feel, we understand the level of anxiety that tax season brings every year. The team at Éclat Enterprises, LLC is prepared to help you overcome your tax fears in 2018.

Here are 10 tips to help you survive the tax season:

  1. Schedule a Tax Consultation: Call us at 414-301-2798 to schedule a tax consultation with Jeneen. This call will take all of 5 minutes at most. (Now, granted we are a bit biased, but give it a try.) Planning ahead is always best.
  2. Collect Documents: Find your most recent paycheck stub, earnings statement, or last year’s tax return.
  3. Come Prepared: Show up to your tax consultation with your documents from step 2! Spend 30 minutes to 1 hour with Jeneen to understand where you stand from a tax perspective. This is a great time to ask questions.
  4. Get and use a checklist: After your consultation, Jeneen will provide you the proper checklist based on your situation.
  5. Get Organized: Using your checklist, organize all the documents you received in January and February into one stack or folder. Sort these documents by type and use paper clips, post-its, etc. to help distinguish each document type. Store the docs in a safe place, but that is accessible enough for you to add more when needed.
  6. Set a budget: Based on the insights you received during your consultation, create a monthly budget, and stick to it! After you’ve figured out what your net pay should be, the next step is creating a personal budget centered on your tax liability. Here’s Jéneen’s annual tax mantra: “My life changes every year, my taxes and budget should too”.
  7. Set a date: Schedule your tax prep as soon as February 1, 2018, with Eclat Enterprises, LLC. Use the phone number in step 1 or email us at taxprep@consulteclat.com to schedule an appointment.
  8. Come to our office: Come to our home office in Butler, WI with your documents in tow, get your tax returns prepared and pay a straightforward flat-rate.
  9. Ask Questions: Ask more questions during your appointment! We get to talk as much as you want.
  10. Save your documents: Save your tax returns and the supporting documents. The IRS recommends that you keep your records for 3 years. We would recommend keeping them for eternity, to be on the safe side!

With this list, you can conquer the rough terrain that some call a tax return with ease. It is easier to prepare for a storm with a great forecast. The 2018 tax season will start in about 100 or so days. But who’s counting, right?

Just know if you get lost along the way we are here, by phone, by email, by web, and in person.

From the desk of,

Jéneen

Your neighborhood friendly Accountant providing tax and accounting services in plain English

Making Dollars and $ense of Your Paycheck

Two questions that I am asked frequently by my clients are: “How much should I be paying in taxes on each paycheck?” and “How many exemptions should I claim for the year?”  My answer is usually suited to the particular client as each client have very unique situations. However, as a tax professional, you can’t know everything. It’s impossible to even try to do so! The last time I was asked this question (started in person and ended via text) the conversation went a little something like this:

Question: “Hey I have a question. One of my co-workers says she changes her exempt status like once or twice a year to have extra money. But she changes her exemptions back right after. Do you recommend that?”
Answer: “It depends on the person, and how well they manage their money. It sounds like your co-worker has a handle on her finances. The common mistake most people make is forgetting to change the exemption back. And honestly, this should be done no more than twice a year after you have paid enough taxes to cover yourself. I personally think that if most my clients increased their exemptions by one, they would see extra money in every paycheck. But this idea is a hard-sell because it means they will have a small tax refund next year.”
Question: “How can I figure out how much I will have to pay in taxes?”
Answer: “Personally, I estimate my federal and state income taxes based on last year’s tax return and the current year’s tax brackets. Then I take that number and divide by the number of paychecks I expect during the year. I request that I pay a flat tax amount every pay period. By doing this, I see my “extra” money throughout the year instead of once a year.”
Question: “Ok. But see that’s you! How can I determine the number of exemptions I need to claim?”
Answer: “The easiest way to determine the the number of exemption to claim is by going to the IRS website and searching for the withholding calculator. When using this calculator you will need your most recent paycheck stub. It will only be effective as the information you put in the calculator. I use it myself periodically, and it has been on point for the last couple of years. Try it out, and let me know what you think”. (You can try it too! Click here).

Question: “Good morning…I just tried doing the calculator thingy you were talking about, which I hope I did it right but it said 3 allowances. I currently claim 1 if that info will help you.”
Answer: In this case you are allowed to claim up to 3 allowances without penalty, “I would claim two to be on the safe side. Tax laws change every year in November. It’s a good rule and habit to check your withholding every June and December”

The key to income tax and withholding is making sure enough is being withheld from every pay check. I know people who are having too much withheld, while others are paying too little income tax. The tax system was designed to balance to 0. Or the worst case: you would have either a small refund or owe a small balance. It is the responsibility of every taxpayer to find that balance, not our employers or the IRS.

Are you claiming the right number of Exemptions- Adjust your tax exemptions
Use these nifty calculators to see if you are on the right track with your taxes. You will need your most recent paycheck stub and prior year’s tax return.
Federal Income Tax Calculator
State Income Tax Calculator
Exemption Calculator
If you want to find out what your net pay will look like, take a look at the Paycheck Calculator. This app will guide you through a line-by-line process and give you an accurate expectation of what you will take home each pay check.
Paycheck Calculator
Jéneen R. Perkins is a freelance accountant and consultant serving entrepreneurs, families and small businesses. She prides herself in being a Freelance Accountant, Fluent in plain English”.