Our “Ask A CPA ” feature answers everyday (and not so everyday) questions you may have around personal finance and accounting topics, from a Certified Public Accountant (moi!). Please note that you should always seek professional advice for more personalized advice. Got something on your mind? Email us at corporate@thecorporatesister.com!

We’re a few months away from the dreaded tax season. And while you may be busy wrapping up the year at work and getting ready for the holidays, the Phantom of the Opera Tax Season may be hanging out in the back of your busy mind. So, is there anything you can start (or stop) doing now to prepare for tax season?

My $0.05:

You know what they say, there are two things you can’t escape, death and taxes (plus those pesky extra pounds on your thighs after the holidays, but I digress…)So, like with all things you can’t pray, eat or bribe away, you should take every opportunity to prepare ahead of time. As in, don’t wait until April 14th to start looking for your tax documents…

Here are a few quick tips even the busiest corporate and business sister (or dude) can start applying today to get a head start:

Get Organized!

Have you been postponing going through your files and paperwork? Well, it may be time to put all that filing and paperwork organizing back on your schedule. Just grab a pint of sea salt caramel ice cream (you know, with the big spoon), put your curls in a pineapple, and get to sorting, digging and filling.

• Keep proofs of expenses and profits: As much as possible, try and retrieve as much proof of the expenses you’ve incurred and the profits you’ve been making. It will come in handy in case you get audited. If anything, it’ll make you sleep easier at night knowing that you have proof for what you’re claiming on your return.

• Create your own filing system: All the electronic records and paperwork can get pretty overwhelming. The best way to tackle your tax and financial information is to devise your own filing system. Only you know what works best for you, so pick a system that’s easier for you to remember and deal with. I’m a bit old school, so I like my good ol’ color-coded folders and labeled files. Whatever works…

• Save hard copies: Ok, I know y’all trust in the cloud and the almighty wifi. But as far as I’m concerned, there’s nothing better than having a hard copy in case you’re stuck in no wifi zone or your brain bails out on you when trying to remember your 125th password…Just sayin’…

Check Out Your Investments!

If you have any investments, it’s always a good idea to check them out frequently to strategically prepare for tax season. Look into reorganizing your investments into tax-favored accounts like 401K and IRAs, because this way, you can postpone taxes until you actually get the money distributed to you (which is until you’re 591/2, unless you decide to get an earlier distribution, in which case you will incur both taxes and a penalty).

If you have more complex investments, you should seek professional advice. In general, be sure to keep good records of your investments. This is especially important in case you make some reinvestments, so that you don’t pay too much tax on funds you were already taxed on when you received them.

Repeat after me: How Can I Reduce My Taxable Income?

Remember you’re always taxed on your income, so the more income you have, the more taxes you pay! The easiest and most straightforward way to bring your taxable income (and your taxes) down, is to invest in your 401K or other workplace retirement plan, allowing you to deduct contributions. This way, you can postpone paying taxes on your contributions, as well as on the earnings. In other words, you’re basically putting away money that compounds tax-free until you retire!

Very Important: If your employer matches your contribution, try to contribute enough to get the maximum matching contribution.

If you invest in an IRA and qualify for this deduction, you may also be able to deduct an IRA contribution (up to $5,000, or $6,500 for those 50 and older).

If you’re enrolled in a high-deductible health plan, consider setting up a Health Savings Account (HSA). Contributions to an HSA are deductible as well.

If you pay for health care or the care of dependents (daycare costs for example), check if your employer offers a flexible spending account. This will help you get a tax break too.

 

Be Charitable!

Giving isn’t just good for the soul, it’s great for your taxes too! Make donations until the very last day of the year to save on your taxes. So go ahead and make those donations!

If you want an extra benefit, give appreciated assets such as stocks or funds. For example, if you’ve owned appreciated securities for more than a year, you may be able to deduct the full market value of the securities and avoid paying tax on the appreciation since you acquired it.

 

What do you do to prepare for tax season?

PS: Got something on your mind? Email us at corporate@thecorporatesister.com!

 

To Your Success,

The Corporate Sis.