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What Young Professionals And Side Hustlers Need To Know For Tax Season 2018

You've secured the bag, now what?

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Tax season 2018 is around the corner and there are key items professionals and small business should be aware of. One of the best tips that I can offer someone who is looking to reduce their stress levels around tax time and concerning their tax return is to try to get more organized for the coming year.

The better organized you are, the more prepared you will fill. Tax time comes around once a year, but for business professionals, it might feel like decades.  Below are tips we share with clients to help reduce the stress and time spent on tax, and financial documentation in general.

Determine whether to itemize or not to itemize

As an individual, you basically have two options, itemized deductions or a standard deduction, with how you want to file your individual 1040, and making that decision now will help you figure out what you need to save and keep track of during the year. It’s easier to take the standard deduction, but you may save a bundle if you itemize, especially if you are self-employed, own a home or live in a high-tax area.

  • It’s worth the bother when your qualified expenses add up to more than the 2017 standard deduction of $6,350 for singles and $12,700 for married couples filing jointly.
  • Many deductions are well known, such as those for mortgage interest and charitable donations.

However, taxpayers sometimes overlook miscellaneous expenses, which are deductible if the combined amount adds up to more than 2% of your adjusted gross income. These deductions include tax-preparation fees, job-hunting expenses, business car expenses and professional dues.

One thing to keep in mind is that not every dollar you spend will be deductible -- for the 2017 tax years (filing in 2018), the expenses you are seeking to itemize (specifically medical) must exceed 10 percent of your adjusted gross income (AGI).

Another thing to remember is that everyone, whatever your filing status, is eligible for a standard deduction. For single filer taxpayers, the standard deduction is $6,350 -- it is important to work with your CPA so you receive the maximum deduction.

If you choose to itemize your deductions you will, in general, have to keep track of more documentation during the year. Some of the most common itemized tax deductions include, but are not limited to medical expenses, charitable contributions, state and local taxes, foreign taxes, mortgage interest deductions, mortgage points, health insurance if you are self-employed, and losses related to natural disasters. There are many more options out there, so be sure to work with your tax adviser to stay current.

Keep detailed business expenses

If you are running a small business or startup, and are trying to claim certain items as business expenses during the year, you are going to have to justify these expenses to the IRS. We recommend to always saving, or track, any items you think you might even want to claim as a business expense.

One of my favorite methods of saving business expenses is to send everything electronically so I can save the emails for tax time, or have it come through an app. Always make sure to keep a back up of your documents.

Track your donations and dues

If you donate to different charitable organizations and groups, or even pay dues for professional organizations, which can range from animal rights groups to dues paid for realtors and even CPAs, you might be able to take that contribution, or a portion of it, as a tax deduction. You will either receive an email at the end of the year letting you know how much you donated or will receive a receipt explaining how much of your payment or contribution is tax deductible. In my experience these organizations are very good at providing this documentation, but if you have not received your documentation by the end of January I would follow with an email or phone call.

Know the tax due dates

April is well known as tax month, but there are several other dates that are important during the year. Quarterly taxes for your business, for example, are due the 15th of April, June, September, and January, so make sure to file and pay if you need to. Lastly, you should have received all of your tax documents, including W-2's and any 1099's, by January 31st. If you find yourself missing documentation be sure to reach out to keep yourself from falling behind. Your outreach efforts might include your IRA program manager, former employers, or companies you did some consulting for during the year. Again, most organizations in my experience are very good at getting these documents out the door, but it is important to keep an eye on where these documents are.

If you can’t finish your return on time, make sure you file Form 4868 by April 17, 2018. Form 4868 gives you a six-month extension of the filing deadline until October 15, 2018. On the form, you need to make a reasonable estimate of your tax liability for 2017 and pay any balance due with your request.

Requesting an extension in a timely manner is especially important if you end up owing tax to the IRS. If you file and pay late, the IRS can slap you with a late-filing penalty of 4.5 percent per month of the tax owed and a late-payment penalty of 0.5 percent a month of the tax due. The maximum late filing penalty is 22.5 percent and the late-payment penalty tops out at 25 percent. By filing Form 4868, you stop the clock running on the costly late-filing penalty.

Be aware of potential deductions

The tax code is very complex and there are numerous tax deductions to consider. Below is a small subset of deductions:

  1. Student loan interest
  2. One-half of self-employment tax paid
  3. Adjustment on Form 1040 of health insurance premiums for some self-employed persons
  4. Penalty on early withdrawal of savings
  5. Alimony paid (does not include child support)
  6. Medical transportation - including tolls, parking, and mileage for visiting doctors and dentists and picking up medicine
  7. Points paid on mortgage or refinancing
  8. Education expenses paid to maintain or improve job skills
  9. State income taxes owed from a prior year and paid in the current tax year
  10. Home office expenses, if primary place of business
  11. Dues to professional organizations
  12. Job-seeking expenses within present field of employment including agencies, resume preparation, parking and tolls, long distance charges, and travel expenses
  13. Cellular phones required for business

If you want you a digitalized tax advisor, check out www.askmyunclesam.com

The information in this article is of a general nature and should not be acted upon without further details and/or professional assistance. To identify and implement the best strategies best suited to your situation, please contact us.

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