As we begin the new year with new years resolutions, adding tax planning resolutions should be on your list. Calvetti Ferguson has provided a summary of tax planning advice and a to-do list for this year.
Tax Planning To-Do List:
1. E-File Tax Returns
Most people can file their taxes electronically. The exceptions are people with unusual tax forms or prior identity theft. Paper filings can lead to a variety of risks. For instance, data entry errors could occur on names or taxpayer ID numbers. You also risk having your paper tax return lost in the mail or at the IRS processing center.
2. Check for W-2 and 1099s
Always check your forms as soon as you receive them. This ensures if there are mistakes on the form, you have time to request and receive a corrected form in time to file. Companies must include a phone number on the form that recipients can call if they have questions. You can avoid dealing with the IRS later by doing this check-up yourself.
3. Do Not Delay the IRS April Deadline
This year the tax deadline for individual taxpayers is April 15, 2024. If a taxpayer misses the deadline, they will have to deal with failure-to-file and failure-to-pay penalties that quickly mount to 5% or more of the tax due per month, plus interest.
All taxpayers are able to extend their filing by six months if they file IRS Form 4868. The IRS also has payment options for taxpayers unable to pay their taxes in April. It is best not to delay or ignore the IRS April deadline to avoid headaches.
4. Minimize Tax Refunds
Tax refunds can be quite significant. Recently, the average is $3,000 for most taxpayers. The IRS does not pay interest on the amount refunded except after 45 days or more. With IRS processing delays, taxpayers could be waiting awhile on the refunds that they may need. Therefore, withholding less allows you to have access to your money earlier, which could be invested and could be earning a higher interest now that interest rates are increasing.
5. Save Your Receipts When Making Home Improvements
When making home improvements, it is important to keep your receipts as some of your home improvements might be characterized as capital investments, thereby increasing your cost basis. This increase in cost basis would reduce the capital gain tax of your home that you would pay when a home is sold.
As a reminder, joint filers receive $500,000 of exemption, and single filers receive $250,000. As real estate values have been increasing, one important tip is to include improvements as part of your cost basis. Capital investments in a home might include repairs like a new roof or renovating a kitchen. However, normal wear and tear maintenance not included such as painting.
6. Talk to a Tax Advisor Before Buying or Selling Alternative Investments
Check with your tax advisor before selling or buying investments like cryptocurrency or other alternative investments.
For example, selling cryptocurrency is not as simple as selling a mutual fund. Cryptocurrency is not subject to ordinary income taxes but rather capital gains and losses when exchanged for real currency. Thus, always talk to your tax advisor to make sure you are making an informed decision when it comes to buying or selling alternative investments.
7. Keep Your CPA Firm Informed
As tax season is approaching, you will want to start thinking about getting all your complete records together and completing and filling out all the necessary questions that your CPA has. This will make the process more efficient and allow for an accurate and timely filing of your tax return.
For instance, if you think you will receive a tax refund, then you will want to prepare all your documentation early so you can file your return ahead of time.
For more helpful insight on the 2024 tax season, visit the IRS website.
Contact Us
If you have questions about the information outlined above or need assistance with tax planning for this year, Calvetti Ferguson can help. Please fill out our contact form below, and one of our team members will be in touch shortly.