Each year — that time of year rolls around again — Tax Preparation Info
that time when Uncle Sam is waiting for your private message to him in the form of filing your personal taxes. One thing to be sure of, and that’s ‘Uncle’ doesn’t write you a thank you note if you overpay him. You won’t receive a nice card in the mail from him that says, “Jane, it was so thoughtful of you this year to send me an extra bonus amount in your tax payment (or maybe not even claim your refund), and I am so appreciative of your kindness.
Have you ever gotten that letter from ‘Uncle”? And yet, the IRS reports that over $1.3Billion (yes, that’s a billion plus dollars) of refunds are not claimed by taxpayers each year. That’s a nice chunk of change for an extra bonus to Uncle Sam’s pockets!
My mother taught me, ‘report all of your income — and take every deduction that you possibly can’. She was a smart businesswoman, who loved to engineer her profitability. And, as a result, she accumulated lots of money in her account! She made money and created her own financial security. Thanks, Mom, you were a great role model for me!
She wasn’t afraid to talk about money and showed me that she was determined to find the best strategies to keep the money she earned. She would say, ‘declare all of your income, they can throw you in jail if you don’t’ — and take every deduction, because the worst that can happen is that you are questioned about why, or if, you could reasonably take the deduction.
Here’s the amazing thing. There are 73,000 pages in the US Tax Code. And in all of those pages, even if you could read them all which (who’s going to do that?)….the Code doesn’t tell you what deductions that you can take. In the end, the Tax Code leaves it up to you to determine what deductions you can legitimately take on your personal tax return. Yes, that is true! You decide what is deductible.
The Tax Code – To paraphrase:
The Tax Code says you can deduct all ordinary and necessary expenses which were paid or incurred in the tax year. So, by all means, take all of the deductions that you possibly can to maximize the money that gets left in your purse.
What kind of expenses are ‘ordinary and necessary’? Here are some of them: education costs, child care, mortgage interest, losses on stock/bonds/real estate, charitable contributions, solar energy installation. Also, costs associated with employment seeking are deductible.
And if you have a business: start-up costs, home office, vehicle and equipment purchases, are all deductible.
The best way to do this and to make sure that you do enable all of the possible deductions that you can take is to hire a professional tax preparer. And remember, their fee is also a tax deduction!
In this day of audits and complex tax forms and regulations, you get their signature on your tax return and that can be a good thing if you need them to stand behind the numbers with the IRS.
Picking the right person to help you prepare your taxes is the first step though. You’ll want to pick someone that comes recommended to you, is competent, does lots of tax returns each year, has a tax office that is open year round (and not just at tax season), and specializes in the particular area of work that you are working in (for instance, if you are an entrepreneur, have a professional practice or other things that require that the person you chose to understand your particular field).
New Law on Taxes-
The new tax law just passed in December 2015, says that same-sex marriage partners can now file ‘married filing jointly’, which is a better tax bracket than filing as a single individual.
And if you have qualified under the Affordable Care Act (Obama Care), then when you file your tax return you also need to include a form 1095 as part of the return.
I heard someone say something one time that stopped me in my tracks. I overheard someone say, ‘when two people meet, one with money and one with knowledge — when they part, the one with the knowledge will have the money and the one with the money will have the knowledge’. That was one of those moments that froze in time for me. I realized that to have money, I had to be knowledgeable.
Let me repeat — the one with the ‘knowledge will have the money’. That meant to me that I had to become aware of and curious about money matters. In my list of the wisest things that I’ve ever heard, that one ranked right up there!
A tax preparer will be a great asset in your ability to keep more of what you earn. And, garbage in, garbage out — if you don’t give them good and organized stuff, they can’t remedy the problem for you. It’s really very simple.
There are many programs to keep track of your finances through the year, from mint.com (which is free) to Quickbooks. And keep track you must. Become familiar with what deductions you are likely to take, keep receipts, and know that you can substantiate your claim for deductions.
I’ve made financial blunders, have you? Like the repair costs on my house that I forgot to keep track of, the money I lent to someone and forgot that it was a loss on my tax return when they didn’t pay it back, the extra expenses that I had to pay to fix the damage caused by a renter — deductions that I missed.
And then I stop, realize that I’m having this human experience that is less than perfect, breath — and ask myself ‘what did I learn from that?’ It’s just the way to build the knowledge so that money stays with me. It’s curiosity to explore and learn and become wiser.
Sometimes, it’s picking up after a fall, being persistent, and ask, ask, ask. Ask someone you know and have confidence in, who do they use for a tax person, what do you need to know for your situation, and how can you do it better next year? As you go along and you grow in your income producing abilities, there will be more to learn so that you have the knowledge.
When I was in graduate school I remember thinking that the fastest way to build wealth was figuring out how to effectively keep what I earned and minimize what goes to Uncle Sam. It was as if my Mother was whispering in my ear. One way that I did that was to start my own business, just like she did. Not only did I like working for myself, I quickly realized that there was a great opportunity for many more tax deductions if I had a business. I quickly set up a corporation and asked myself about producing revenue so that I had the tax shelter of a business, and this gave me many more deductions than I could take as an individual filing a tax return. If having your own business is an option for you, it is a proven way to improve your tax situation.
Funny story though. One day my tax accountant came into my office and asked me if I was sure that I only took business expenses in my business accounting. I assured him very confidently that, of course, that was the case. I was remembering that the tax code said that I could take ‘ordinary and necessary’ deductions, right? He left. I remember him in his navy blue suit, white shirt, and skinny striped tie. About an hour later he came bursting back into my office all full of angst. I looked up from my desk to see that his face was bright red. In a flash, I wondered what I had done. He announced with vigor ‘bras and panties from Bloomingdales are not a business expense!’, as he stumbled to get the words out of his mouth. What? — I thought that they were ‘ordinary and necessary’. — after all, a girl needs to feel pretty on the inside to keep her wits about her in the fast-paced investment banking world that I worked in! He disagreed. I guess that I lost on that one!
It was worth a try. Point is, take all the deductions that you can. It takes knowledge to have money. And you can do this!!
Joan Perry is the publisher of www.WomensWealth.money, the national authority site for women and money. She is a Best Selling Author of ‘A Girl Needs Cash’, Random House; and Living Proof, Celebrating the Gifts that Came Wrapped in Sandpaper (co-authored with Lisa Nichols). Joan is also the creator of The Women’s Wealth Model, A Heroine’s Journey to True Wealth,. As a pioneer in the field of women’s wealth, she founded the first female-owned investment banking firm that underwrote and traded municipal bonds for major governmental entities. Now as a women’s wealth advocate, she serves as a teacher, coach, writer and speaker.