Tax Tips

  • If you have self-employment income from a schedule C or you were issued a form 1099, tax tipsyou should strongly consider making a SEP contribution rather than an IRA contribution. A SEP contribution (Simplified Employee Pension) is fully tax deductible and can usually be larger in amount than an IRA. Further, the SEP gives you other options an IRA doesn’t.
  • If you are self-employed or have self-employment income, you may be eligible to deduct part of your health insurance premiums directly against your income. This could be a big tax saver.
  • If you receive a 1099 in one year for money you physically receive in the following year, you do not have to pick it up until that following year. You should be sure to note this properly on your return.
  • You can deduct a credit charge in the year it was charged, rather than when you pay the bill. So if you charge a deductible expense on December 20th, but don’t pay the credit card bill until January 17th, you should take the deduction for the prior year.
  • If you have a child, you must have his/her social security number in order to claim an exemption. This is true regardless of your child’s age. You can contact Social Security at 1-800-772-1213. Make your life easy and just fill out the forms in the hospital when the baby is born.
  • If you owe money on your return and you can’t afford to pay it, enclose what you can afford now and file the return with a balance due. Many taxpayers do not realize that the penalty for “Failure to File” is 10 times greater than “Failure to Pay.”
  • If you buy a mutual fund shortly before a capital gains distribution, part of your investment will almost immediately be handed back to you. The result: you’ll owe tax on the distribution and have less money to reinvest. Ask the fund company the date of the next scheduled distribution and purchase shares after this date.
  • You may think that selling one bond fund to buy another is just a way of rebalancing your portfolio, but the IRS will view the sale as a capital gains transaction. You can postpone the tax by transferring between funds after Dec. 31st, but if you’re committed to making the transfer this year, be sure to withhold part of the sale proceeds to pay taxes on the gain.
  • When calculating cost basis, most people remember to factor in commissions on trades or mutual fund transaction fees, but many overlook money that has automatically been reinvested. Reinvested capital gains and dividends can add quite a bit to cost basis so your gains may be much smaller than you believe.

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