CALL TODAY! 800-842-8430

Watch Out for These Tax Mistakes

Watch Out for These Tax Mistakes

Many taxpayers avoid the entire income tax process until the last minute and then rush through it as quickly as possible.  But if your objective is to pay the least amount of income tax, you should spend some time planning for that result.  Some common mistakes to avoid include:

  • Maintaining poor tax records – Don’t rely on memory to keep track of deductions.  During the year, accumulate any tax receipts or notes concerning deductions in one place.
  • Withholding too much in taxes – When you receive a refund, you’ve given the government an interest-free loan for the year. Consider reducing your withholding and investing the additional sums.
  • Ignoring the alternative minimum tax (AMT) – A variety of items must be added to your taxable income when calculating the AMT, including personal exemption deductions; standard deductions;  state, local, and property tax deductions; miscellaneous itemized deduction; medical expenses under a certain percentage of your adjusted gross income (AGI); municipal interest from certain private-activity bonds, certain business-related items; and the difference between the market price and exercise price of incentive stock options.  If you are subject to the AMT, conventional planning does not apply, and you need to consider your tax situation carefully.
  • Not contributing to your company’s 401(k) plan – Not only will the plan help you save for retirement, but it can help you reduce your current year taxable income. For instance, in 2015, you can contribute a maximum of $18,000, plus individuals over age 50 can contribute an additional $6,000 catch-up contribution, if permitted by the plan.  If you are in the 35% tax bracket, contributing $18,000 will reduce your current year tax bill by $6,300.
  • Failing to bunch deductions – It only makes sense to itemize deductions if your total deductions exceed the standard deduction amount, which for 2015 is $12,600 for married taxpayers filing jointly and $6,300 for single taxpayers.  In addition, some deductions must exceed certain thresholds.  Many expenditures can be bunched in one year or another to take advantage of these limits.  For instance, if your total itemized deductions are slightly below the limit, you might consider prepaying property taxes or estimated state taxes.
  • Using the wrong basis for investments – When calculating gains and losses on investment sales, your basis includes your original cost plus any reinvested dividends and capital gains.  If you are only selling a portion of the investment, specifically identifying which portion you are selling can affect the amount of gain or loss.
  • Overlooking charitable contributions – In addition to cash and property donations, you can deduct mileage, parking fees, postage, and long-distance phone calls made while performing charitable work.
  • Not considering filing separate returns – In some situations, it may be more beneficial for a married couple to file separately. Once you file jointly, your return can’t be amended to file separately, so calculate your tax both ways before filing.
  • Forgetting deductions carried over from prior years – Don’t forget about items you carried forward because you exceeded annual limits, such as capital and/or passive losses, charitable contributions, and alternative minimum tax credits.

Photo Credit: djking via Compfight cc

Copyright © Integrated Concepts 2015. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. The appropriate professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

Leave a reply

This site is for informational purposes only and is not an offer to sell or a solicitation of any offer to buy any securities or investment advisory services which may be referenced herein. We may only offer services in states in which we have been properly registered or are exempt from registration. Therefore some of the services mentioned may not be available in your state, and if not, the information is not intended for you. ALMEA Insurance, Inc. is not a registered broker/dealer or investment advisory firm. Bill Wilson is licensed to offered securities through KMS Financial Services, Inc. ALMEA Insurance and KMS Financial Services are not affiliated and there is no common ownership or control. | Member FINRA / SIPC