Tax Guide from McLan Accounting
Taking care of your taxes properly is essential for both individual and businesses. Unfortunately, the fact that the IRS tax codes are thousands of pages long, it is very difficult to avoid making mistakes. This guide will offer you advice on a variety of situations to help ensure you are able to manage your taxes without any major problems.
What Deductions are Available when Self-Employed?
In order to qualify as a valid deductible, an expense taken on by a business must be able to be classified as both ordinary and necessary. This means something that you really should have in order to do business, and something that everyone in a similar industry would require. Note that this doesn’t mean your business would close without that particular expense, but only that it is an important item for day to day operations.
What Can I Do when I Have a Large Capital Gain?
If you have made large gains on an investment over the course of a year, it is often a good idea to hold on to the investment so that it can be included with the following year’s taxes. You can also offset these gains by selling other investments at a loss to bring down your tax burden.
What Types of Investments will Defer Taxes?
In most cases, the interest gained off of investments into state and local bonds will be exempt from taxes. Treasury bonds are another option that can grow tax-free. Keep in mind, however, that these bonds are typically going to offer a lower return on investment than other options.
What Types of Retirement Plans can Help Defer Taxes?
There are different types of retirement plans that can be used to help reduce your tax burden. Roth IRAs and Roth 401(k)’s, for example, will allow you to pay taxes now and avoid being taxed on the growth. If you’d rather avoid taxes today and pay them on the other end, traditional IRAs, 401(k)’s, and other options can provide that advantage.
Is it Possible to Defer This Year’s Income?
Deferring income can be an effective way to manage your tax rate over the course of several years. Many businesses will postpone certain invoices to ensure the money comes in when it is desired. It is often possible to offer a discount to customers to get advanced payment when you’d rather boost income this year to keep it lower next.
What Records are Required for Tax Returns?
Keeping detailed records is important for both individual and business tax returns. Keeping receipts, tracking both income and expenses, and keeping all payroll related documents will help ensure your taxes are easy to manage. Always keep your records properly organized and separated based on different categories such as income, expenses, medical expenses, taxes paid, business expenses, education, travel, auto, home expenses, etc.
How Long Should I Keep Records?
Keeping your records for at least 3-5 years is a good idea. If the IRS decides to audit your return, having those records on hand will make the whole process much easier. Placing all the records for each past year in a box will make them easy to store and find should they become necessary to use.
What Other Records Should be Kept?
If you make any major purchases, keeping those records can help when claiming the depreciation on your taxes. Any goods that are purchased that you plan on selling in the future should also have their records kept so you can properly calculate any profits or losses on the purchase.
What is the Best Recordkeeping System?
Individuals typically don’t need a complex recordkeeping system. Placing all tax related documents into a filing cabinet is more than sufficient. Some people will want to scan them into a computer where they can be easily accessed. For business owners, it is almost always worth the investment to hire a bookkeeper or accountant who will not only help with filing taxes, but also keep everything properly stored.
What Tax Benefits are Available for Paying for Children’s Education?
If you are contributing to the higher education of your children, you can often get some great tax breaks. The following are some of the most significant tax advantages available when paying for higher education. Just keep in mind that you can usually only use one of these options So, make sure to look closely and decide which one is best in your situation:
Get the Help You Need
While there is a lot you can do to help manage your taxes each year, most people will benefit dramatically from having an experienced accountant handling some of the more complicated steps is well worth the costs. If you live or work in New Jersey or New York, McLan Accounting can provide you with the services you need to help ensure you don’t run into any problems with your taxes.