By Scott Goble, MS, MBA, M.TAX, Certified Public Accountant and founder of Sound Accounting, PLLC
Taxes, often referred to as the price of civilization, ironically have a way of bringing out our most animalistic and uncivilized emotions. The fear of encircling predators suddenly returns to us from a time when fire and the wheel were new, the uncertainty of what lies beyond our view from the cave opening grips our very souls, and at times, let’s just call it what it is, animalistic rage consumes us in a way that only Fred Flintstone could understand. The cost of civility has a way of taking us right back to the Stone Age. Truly, taxes can mean a lot of different things for a lot of different folks, but something we like to do at my firm is assure our clients that tax season is not synonymous with hunting season for the IRS, and then take advantage of all the ways Uncle Sam allows us to mitigate their tax burden. Here are some quick tips on how you can do the same thing and maximize your return.
Firstly, the best tip I could offer for maximizing you income tax return would be to keep accurate records. Especially if you are self-employed or own a small business, this is of utmost importance. Throughout my career, time and time again I’ve found that poorly kept records are the source of numerous headaches, internal business spats, and most painfully, lost money. In most instances, when records are not kept accurately, businesses tend to understate their deductions- they end up paying tax on phantom income. Taxes on the apparition of income are definitely something to be avoided, and you can evade this peril of tax season by simply keeping good records.
Secondly, I would highly encourage you to take part in tax planning before the end of the year. The laws on the books allows individuals to arrange their finances in a manner that minimizes their tax burdens, but the majority of these options are available before December 31. The best practice is to start planning as early as possible. At my firm, we start scheduling tax planning meetings with our clients in September, and this gives us plenty of time to access our options, make a solid plan, and be ready to file the most favorable tax return possible. So tip two, start early.
For a third tip, tax planning should be a family affair. Despite our love of accounting, even us CPAs have a hard time imagining everyone gathered around the dinner table for a fun filled evening of Monopoly and tax planning, so much to our chagrin, it probably won’t look like that. But regardless, a family tax plan is a great way to maximize your return, and you should wrangle your loved ones together to discuss a family-wide strategy. If you have children who earn income, or if you care for your parents or any other dependents, a family plan that takes all these different factors into consideration can be to the whole family’s benefit.
Finally, and very importantly, I would recommend that you not be so focused on federal taxes that you forget about state taxes. Even if your state of residence doesn’t have an income tax, there may be other taxes levied against certain forms of income that you shouldn’t let slip your mind. For example, our bordering state of Tennessee has the Hall Tax, which is a 6% tax on any income earned from interest or dividends, including distributions from closely held corporations taxed under subchapter S of the Internal Revenue Service Code. State tax requirements are definitely something to look in to in order to make sure that you are in compliance with your state’s tax laws.
I hope these tips can help you maximize your return, and I also hope this spurns someone to organize a family night of Monopoly and tax planning. Best of luck in all your ventures and happy tax season.