It's that time of year: everyone is talking about taxes. You've probably started receiving forms and statements in the mail. The deadline for filing your tax return (Form IRS 1040) in 2017 is April 17. (Normally, tax day is April 15, but this year the 15th falls on Saturday so the next business day is Monday, April 17th.) We have a couple of things to keep in mind during the tax season to help you stress less:
1. Don’t panic! If you have been doing this yourself for years, nothing changed so much that you can’t continue to do that. If you have questions, there are plenty of tax professionals who can help. There’s just no need to stress, and if you start now, you have plenty of time to get organized.
2. Figure out if you even need to file (or pay taxes). If you’re single and over the age of 65 and your gross income is less than $11,900 (not including Social Security), you don’t even need to file. If you’re married filing jointly and your gross income is less than $23,200 (exclusive of Social Security), you don’t need to file (or pay). However, please note that if you have self-employment income, the rules are different.
3. Gather all your income tax stuff. Most of this "stuff" will come to you automatically, so start a file and keep it all together. For example, you’ll be receiving a W-2 if you’re still earning wages or a salary. If you have interest or investment income, you’ll most likely be receiving a Form 1099. If any portion of your Social Security benefit is taxable, you’ll be getting the form SSA-1099, which splits out the taxable portion of your Social Security.
If you received a distribution from a business entity such as a Subchapter S corporation or a limited liability company that is not wages or salary, you will receive Form K-1. You will also get a Form K-1 if you received a distribution from an irrevocable trust. You need to get this Form K-1 to your tax professional with all of the others. It’s important to note that a copy of all of the forms that we’ve talked about is also submitted to the IRS. If you forget one, it can be a red flag to the IRS, because they will have a copy.
If you will be itemizing deductions, you will also need to gather records of such things as charitable deductions (church contributions such as tithes and other offerings). Medical expenses are deductible if they exceed 10% or your adjusted gross income. The property taxes on your house and other taxes can be deductible. Keep track of the documents. In short, if you want to deduct it, you’d better document it.
4. Reduce your taxes, if you can. If you are still contributing to an IRA, either traditional or ROTH, you can contribute all the way up to the tax filing date, again this year that’s April 17, and still deduct it on your 2016 taxes. However, it’s too late to contribute to your 401(k) and deduct it on your 2016 taxes. That deadline is December 31st. If this affects you, keep it in mind for your 2017 taxes and contribute by the end of the year.
5. Do you have other taxes this year? For example, did you give any sizable gifts to anyone in 2016? By sizable, I mean more than $14,000 to any one individual. If you did this, you may need to file a Gift Tax Return in addition to your Form 1040. If you sold appreciated property in 2016, you may have capital gains tax liability. This is filed with your Form 1040.
6. Think ahead. Just like your Legal Life Plan, and almost everything in the planning world, you have two choices. You can pick the default plan (the government plan) or you can plan by design and take actions to reduce taxes if not now, then in the future. These actions to reduce taxes include looking at the options of when to take your Social Security benefit or when to make distributions from your IRA. Careful planning can increase income and reduce taxes.
Tax time can be stressful, but it doesn't have to be. If you take action now for this year, you'll have plenty of time. You can also use this opportunity to look at your tax liabilities for beyond this year and plan now to reduce taxes and make smart decisions. Questions about planning, gifts, or taxes? Give us a call. We may not know the answer, but we're good at finding someone who does.