According to local tax preparers, there are several tips for individuals, businesses and students that can make the road to April 15 a little smoother.
Jason Watson, managing partner with Watson CPA Group, said individuals filing 2014 taxes should consider a number of things.
First, Watson said, if expecting and near the due date, induce labor before the end of the year.
“If you have a child this year, it will add about $1,500 back in your pocket,” Watson said.
Second, Watson said to put any monetary holiday bonus in a 401k if possible.
“It wasn’t cash you were expecting necessarily, and if you put it in your 401k, then it is all tax-deferred,” he said.
Watson also advised selling losing stocks and buying them back in 31 days to avoid a wash sale disallowance, an Internal Revenue Service rule that prohibits a taxpayer from claiming a loss on the sale or trade of a security.
Watson said filers should understand their flex spending accounts and whether funds roll over into the new year. Filers should also consider converting an IRA to a Roth IRA during a lower income year, Watson said, adding that if possible, it’s best to pay property taxes due in April 2015 now for the tax benefit during a higher income year.
According to Debby Miller, owner of Phases Accounting in Colorado Springs, one of the most common questions she receives around the new year is whether individuals should seek a tax filing extension.
“Most of the time you can’t file electronically until Jan. 15,” Miller said. “It’s always better to wait until you have all of your W2s and records together. Some people like to do their taxes based on their paystubs, but sometimes those don’t reflect things correctly.”
Miller said, if taxes are filed electronically and the filer is eligible for a refund, it should take about two weeks. She added that some larger businesses and big-box retail stores will offer refund anticipation loans, but tack on “astronomical” interest rates of up to 250 percent.
Miller added that she advises clients with complex tax situations to request a filing extension to Oct. 15.
“The big thing people forget is, if they file an extension, it’s an extension to file, not an extension to pay,” she said. “You still have to pay on time if you owe.”
Miller said financial institutions often send their clients several revisions of earnings reports, which would require amendments by early tax preparers.
“If you have a complex situation, it’s also better to file for an extension so you won’t be making amendments,” she said.
Miller said some small changes to the tax code for 2014 affect individuals. For instance, she said those who open an IRA before Dec. 31 now have until April 15 of next year to fund it.
Miller added that earners in the highest income bracket, who pay nearly 40 percent in income taxes, now must make $457,600 when filing jointly to reach that threshold, a $7,600 increase over last year’s minimum.
Finally, 2014 marked the first year where all individuals were mandated to carry health insurance due to the Affordable Care Act.
“If you didn’t get insurance for 2014, you have to pay a [tax] penalty,” she said.
For business owners making more than $30,000 in net business income, consider converting an LLC to an S Corp to save on self-employment taxes, Watson said.
“That will save about 5 to 6 percent,” he said. Watson added that business owners should consider purchasing needed equipment before Dec. 31.
“Cash is still king above a tax savings, but if you expect to buy equipment … do it in December, [but] don’t dream up things to buy for the tax savings, because you’re separating with cash.”
Watson also said, for single business owners or husband-and-wife teams, it’s advisable to get an i401k.
“If you don’t have an i401k, you should,” he said. “We like the i401k … because it has a much higher contribution limit” than a Simplified Employee Pension Individual Retirement Arrangement, or SEP-IRA.
Business tax filers should be especially vigilant in 2015, according to Miller, as the IRS will be expanding its scope.
“If you own your own business, it’s not a good idea to do your own taxes,” she said.
“The IRS hired 8,000 new auditors this year and their primary target is self-prepared business tax returns. Look for a qualified tax preparer.”
Miller said notable business filing details include increased mileage reimbursements of 56 cents a mile. Miller also recommended companies that qualify explore the Section 179 equipment depreciation deduction available this year.
“Section 179 is alive and well for 2014,” according to Section179.org. “The current deduction limit is $25,000 plus an adjustment for inflation. This means businesses can deduct the full cost of qualifying equipment from their 2014 taxes, up to $25,000. The equipment must be purchased and put into use by midnight, [Dec. 31.]”
The website states, “Section 179 limits for the year 2013 were increased by the ‘American Taxpayer Relief Act’ which allowed businesses to write-off up to $500,000 of qualified capital expenditures subject to a dollar-for-dollar phase-out once these expenditures exceeded [$2 million] in the 2013 tax year.”
A full list of deductible equipment can be found at Section179.org.
“It used to be you were able to deduct a bonus depreciation of 50 percent if expenses exceeded $250,000, but that’s gone as well,” Miller said of the reduced maximum deduction for 2014.
Miller said a small but impactful piece of advice to small business owners would be to create and maintain a mileage log for the year.
“[Mileage reimbursements are] something the IRS is auditing heavily,” she said. “Mileage has to be written down. Don’t just estimate.”
Miller said another tax issue employers need to consider is falsely claiming employees as subcontractors to avoid payroll taxes.
“The Colorado Department of Labor has hired more auditors to catch employers skating around those tax laws,” she said.
Miller said students, in most cases, may be claimed as a dependent by their guardians until the student turns 23.
“Parents could see a personal exemption benefit if they claim their child as a dependent during that time,” she said.
She said parents will often be eligible for an education tax credit good for up to $2,500 for which students filing alone may not qualify.
Miller said if the student earns less than $6,000 in year, he or she would only need to file if taxes were withheld.