CHICAGO — The filing deadline for 2016 federal income taxes is rapidly approaching, but you still have time to make sure you’ve done everything you can to keep Uncle Sam’s paws off as much of your money as possible.
Earning money in a small business is tough enough these days, and keeping it is even harder. Here are some last-minute ways to do that by reducing your 2016 income tax bill:
OFTEN OVERLOOKED DEDUCTIONS
Many easily overlooked miscellaneous expenses are deductible as long as they add up to at least 2% of your adjusted gross income. Grouping them can help you meet the 2% threshold. Here are some miscellaneous items you may have overlooked:
Tax Preparation Costs — You may claim the cost of personal income tax preparation software or books as a miscellaneous deduction. If you hire a professional tax preparer to do your taxes, you may also be able to deduct the fee.
Interest from Home Refinancing — If you refinanced a mortgage and still have unamortized points left to deduct from an earlier refinancing, you can claim all the unamortized points from the earlier refinancing as deductible interest.
Purchases Financed by Loans or Credit Cards — If you made large purchases on your credit card or with a loan, don’t forget to deduct any interest costs involved.
Use caution when taking advantage of miscellaneous deductions. Document everything. If the IRS decides to question you about any of your deductions, they will want to see all of your pertinent receipts and statements. Self-employed business owners are a favorite audit target for the IRS.
Check your math and be sure to get the correct tax amount from the tax table, if you use it. The other numbers to be most careful about are identification numbers — usually Social Security numbers — for each person listed on the return.
There is an IRS toll-free help line, 800-829-1040, and the agency’s website has interactive tax aids, forms, and publications available to download.
If you’re unable to complete your return on time, you may request an automatic extension to Aug. 15; Form 4868 has details. There is also a special toll-free number for requesting an extension by phone — 888-796-1074 — before the regular filing deadline.
An extension gives extra time for filing only, not for paying any balance due. Interest will apply to any tax not paid by the April deadline, plus a late payment penalty if you pay less than 90% of the total tax on time.
When you mail your return, be sure to get it to your local Post Office before the last pickup of the day. Some Post Offices stay open late to accept returns for a “deadline day” postmark. You may also use one of the designated private delivery services to meet the filing deadline. The four companies involved — Airborne Express, DHL Worldwide Express, Federal Express and United Parcel Service — can provide details on which of their services qualify and how to get proof of timely filing.
Keeping your personal income tax to the legal minimum requires a little planning and effort on your part but the time you spend chipping away at your taxes may be among the most profitable investments you’ll make this year.
PLAN NOW FOR 2017 TAXES
The best way to pare your personal and business income taxes is to avoid the last-minute rush to beat the filing deadline. Here are a few tips that will help you minimize taxes for 2017.
Organize Your Records — If you scramble every March and April looking for receipts and other records to pass along to your accountant, you’re probably missing out on some healthy deductions. Start out right by organizing your records as they accumulate. Set up manila folders for expense and income records and file them as they accumulate.
Maximize Tax-Deferred Retirement Funding — Don’t wait until filing time to fund your retirement account. Making the maximum allowable deposits into your retirement account as early in the year as possible not only reduces your tax load, it also adds months to the tax-deferred compounding of your investment.
Home Equity Interest — If you have a high-interest car loan or a large credit card balance, you may want to consider taking out a home equity loan at a lower interest rate to pay them off. You can generally deduct interest you pay on the first $100,000 of a home equity loan. However, there are some limitations so you should consult with your tax adviser on your eligibility.
Balance Investment Gains and Losses — Keep a close eye on your investment performance during the year. By selling appreciated assets and liquidating underperforming investments, you may match gains and losses to minimize your personal income taxes. The amount of capital losses you can use to offset ordinary income is limited to $3,000. But if your net loss totals more than $3,000, don’t worry. You can carry forward the losses over $3,000 every year until you use them up.
Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult an attorney or tax adviser for advice regarding your particular situation.
If you missed Part 1, you can read it HERE.