Some have made the comment: two things are guaranteed in life - death and taxes. Perhaps that holds much truth. At least it appears so in the United States of America since 1913 when the first income tax return was required.
I don’t know too many folks over 100 years old - as a matter of fact, I do not personally know any, although a few I know are close to that age. So very few people nationwide could even remember a day when there was no income tax. Taxes are a common factor of life in these United States.
The question then becomes: How much do I have to pay? Or, better yet, how can I pay the least amount possible and save on tax dollars? That is the million-dollar question of today.
Fortunately, there are many legitimate ways to save on your taxes. In my thirty-plus years of experience, I have helped thousands of clients do just that - through knowing and properly applying tax laws and regulations.
Income Tax Primer
The basic income tax code, called the Internal Revenue Code, lays out the requirements of reporting, filing and paying taxes on the taxable income a taxpayer earns.
In this volume, consisting of thousands of pages now, it outlines what types of compensation are reportable and which ones are not. Others may be taxable in some cases, and may not be in others. For the average taxpayer, trying to decipher the tax code is a nightmare!
In its basic formula, taxable compensation does include most all income earned, in whatever form. This generally includes wages, self-employment income, and retirement income. For many years now, the tax code includes many other forms of income as taxable compensation. Some of these are interest and dividends, sale of capital assets, pro-rata share of corporation or partnership income, and social security or unemployment benefits.
Geez! Sounds like they’ll tax everything - including the Farm! Well, yes, as a matter of fact, they’d like to. But, there is good news!
Congress, over the years, has built into the tax code a variety of tax-saving features, many in response to various lobbying efforts or special needs as they’ve arisen. Tax savers include adjustments to income, deductions, exemptions and tax credits.
These can apply to a vast majority of American taxpayers. For instance, most all taxpayers can claim a personal exemption for themselves and possibly exemptions for other qualified dependents on their tax return. Certain rare cases deny a personal exemption for a taxpayer, such as is the case of a dependent child needing to file a tax return of his or her own. But most all taxpayers claim at least themselves, if no other dependents.
Other tax savers may apply to a select few, such as tax credits for special items. Still others, such as itemized deductions, child tax credits or IRA contributions may apply to a large number of taxpayers.
Knowing which apply to you, and how to take advantage of them is what makes the difference for individuals like you.
How to Save Tax Dollars
The key to saving on your tax monies is to know and use all applicable tax laws to your advantage.
For instance, as one example, Social Security recipients who receive prior-year monies in the current year have the option of choosing between reporting all of the income in the current year or taking what’s called a “lump-sum election.” The taxpayer is free and encouraged to use whichever option is best for him or her.
Let’s say in the prior years, Taxpayer J’s income was much higher due to regular full-time employment, contrasted with his or her current year of semi-retirement and lower wages or fewer working hours. It may be more advantageous for Taxpayer J to choose to claim all the income this year and not take the lump-sum election. Taking the election in this case could result in higher taxable compensation for those years. This translates into higher taxes. Taxpayer J can choose the option that nets him or her the least amount of taxable income for the current year.
But some taxpayers in such a situation simply don’t know what they can or cannot do.
There is Hope
Many options abound for you to get help and sound guidance! You can choose to DIY by researching topics through the IRS website and other places. Know, however, that some of this information is more valid than others. Check out the source and the credentials of the source to determine the soundness of the advice.
Many taxpayers seek professional help from Enrolled Agents like myself, or from CPA’s and other licensed or experienced tax and accounting gurus. Depending upon your needs and who you choose, this could be quite costly.
Give me a call and let's talk about how I can help meed your tax and accounting needs.