Tax Planning Strategies to Use This Year

Looking to save money on your taxes this year? It’s never too early to start planning ahead using these proven tax planning strategies.

Max Out Your 401(k) or Contribute to an IRA

You’ve heard it before, but it’s worth repeating because it’s one of the easiest and most cost-effective ways of saving money for your retirement.

Many employers offer plans where you can elect to defer a portion of your salary and contribute it to a tax-deferred retirement account. For most companies, these are referred to as 401(k) plans. For many other employers, such as universities, a similar plan called a 403(b) is available. Check with your employer about the availability of such a plan and contribute as much as possible to defer income and accumulate retirement assets.

Tip: Some employers match a portion of employee contributions to such plans. If this is available, you should structure your contributions to receive the maximum employer matching contribution.

If you have income from wages or self-employment income, you can build tax-sheltered investments by contributing to a traditional (pre-tax contributions) or a Roth IRA (after-tax contributions). You may also be able to contribute to a spousal IRA even when your spouse has little or no earned income.

Tip: To get the most from IRA contributions, fund the IRA as early as possible in the year. Also, pay the IRA trustee out of separate funds, not out of the amount in the IRA. Following these two rules will ensure that you get the most tax-deferred earnings possible from your money.

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What to Do if You Haven’t Filed a Tax Return

Filing a past due return may not be as difficult as you think.

Taxpayers should file all tax returns that are due, regardless of whether full payment can be made with the return. Depending on an individual’s circumstances, a taxpayer filing late may qualify for a payment plan. It is important, however, to know that full payment of taxes upfront saves you money.

Here’s What to Do When Your Return Is Late

Monday, April 18, 2016, was the tax deadline for most taxpayers to file their 2015 tax return. If you didn’t file a tax return or an extension to file but should have, take action now.

First, gather any and all information related to income and deductions for the tax years for which a return is required to be filed, then call the office.

If you’re owed money, then the sooner you file, the sooner you’ll get your refund. If you owe taxes, you should file and pay as soon as you can, which will stop the interest and penalties that you will owe.

If you owe money but can’t pay the IRS in full, you should pay as much as you can when you file your tax return to minimize penalties and interest. Read more

April 18th is Tax Day

Due to the Emancipation Day holiday on April 15, 2016, tax returns and payments are due April 18, 2016. Here is a list of filings and payments that are due:

Individuals – File an income tax return for 2015 (Form 1040, 1040A, or 1040EZ) and pay any tax due. If you want an automatic 6-month extension of time to file the return, file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return or you can get an extension by phone if you pay part or all of your estimate of income tax due with a credit card. Then file Form 1040, 1040A, or 1040EZ by October 17.

Household Employers – If you paid cash wages of $1,900 or more in 2015 to a household employee, file Schedule H (Form 1040) with your income tax return and report any employment taxes. Report any federal unemployment (FUTA) tax on Schedule H if you paid total cash wages of $1,000 or more in any calendar quarter of 2014 or 2015 to household employees. Also report any income tax you withheld for your household employees.

Individuals – If you are not paying your 2016 income tax through withholding (or will not pay in enough tax during the year that way), pay the first installment of your 2016 estimated tax. Use Form 1040-ES.

Partnerships – File a 2015 calendar year return (Form 1065). Provide each partner with a copy of Schedule K-1 (Form 1065), Partner’s Share of Income, Credits, Deductions, etc., or a substitute Schedule K-1. If you want an automatic 5-month extension of time to file the return and provide Schedule K-1 or a substitute Schedule K-1, file Form 7004. Then file Form 1065 by September 15.

Electing Large Partnerships – File a 2015 calendar year return (Form 1065-B). If you want an automatic 6-month extension of time to file the return, file Form 7004. Then file Form 1065-B by October 17. March 15 was the due date for furnishing the Schedules K-1 to the partners.

Corporations – Deposit the first installment of estimated income tax for 2016. A worksheet, Form 1120-W, is available to help you estimate your tax for the year.

Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in March.

Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in March.

Tax Tips for the Self-Employed

If you are a self-employed, you normally carry on a trade or business. Sole proprietors and independent contractors are two types of self-employment. If this applies to you, there are a few basic things you should know about how your income affects your federal tax return. If you’re self-employed, here are six important tax tips you should know about:

• Self-Employment Income. Self-employment can include income you received for part-time work. This is in addition to income from your regular job.
• Schedule C or C-EZ. You must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040. You may use Schedule C-EZ if you had expenses less than $5,000 and meet certain other conditions. Please call if you are not sure whether you can use this form.
• Self-Employment Tax. If you made a profit, you may have to pay self-employment tax as well as income tax. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE,Self-Employment Tax, to figure the tax. If you owe this tax, attach the schedule to your federal tax return.
• Estimated Tax. You may need to make estimated tax payments. These payments are typically made on income that is not subject to withholding. You usually pay estimated taxes in four annual installments. If you do not pay enough tax throughout the year, you may owe a penalty. See, Estimated Tax Payments – Q & A, above, for more information about estimated tax payments.
• Allowable Deductions. You can deduct expenses that you paid to run your business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business.
• When to Deduct. In most cases, you can deduct expenses in the same year you paid, or incurred them. However, you must ‘capitalize’ some costs. This means you can deduct part of the cost over a number of years.

Questions about self-employment taxes? Help is just a phone call away.

Cut your Tax Bill with Home Energy Credits

Did you know that it’s possible to trim your tax bill and save on your energy bills with certain home improvements? Here are some key facts you should know about home energy tax credits:

Non-Business Energy Property Credit

• Part of this credit is worth 10 percent of the cost of certain qualified energy-saving items you added to your main home last year. This may include items such as insulation, windows, doors and roofs.
• The other part of the credit is not a percentage of the cost. It is for the actual cost of certain property. This may include items like water heaters and heating and air conditioning systems. The credit amount for each type of property has a different dollar limit.
• This credit has a maximum lifetime limit of $500. You may only use $200 of this limit for windows.
• Your main home must be located in the U.S. to qualify for the credit.
• Be sure you have the written certification from the manufacturer that their product qualifies for this tax credit. It is usually posted on the manufacturer’s website or included with the product’s packaging. You can use this information to claim the credit, but do not attach it to your return. Keep it with your tax records.
• You may claim the credit on your 2015 tax return as long as you haven’t exceeded the lifetime limit in past years. Under current law, this credit is available through Dec. 31, 2016.

Residential Energy Efficient Property Credit

• This tax credit is 30 percent of the cost of alternative energy equipment installed on or in your home.
• Qualified equipment includes solar hot water heaters, solar electric equipment, wind turbines and fuel cell property.
• There is no dollar limit on the credit for most types of property. If your credit is more than the tax you owe, you can carry forward the unused portion of this credit to next year’s tax return.
• The home must be in the U.S. It does not have to be your main home unless the alternative energy equipment is qualified fuel cell property.
• This credit is available through 2016.

To claim these credits use Form 5695, Residential Energy Credits. If you would like more information on this topic, don’t hesitate to contact the office.