Guest post by Bryant Armstrong, CPA and Partner at Squire & Company, PC
Mention the words “tax return” and most people start thinking of excuses to put it off for as long as possible. What many forget is that good preparation leads to more money back or less money paid to the IRS.
To help you prepare for the upcoming tax season, here are a few tips that will maximize your return:
1. Watch Income Timing – You may have an opportunity to delay receiving certain income, such as a year-end bonus, commission payout, or a taxable distribution from a retirement account, until early 2012. Delaying this income will defer the related income taxes. Income deferrals can have other tax benefits as well, such as helping to preserve certain tax breaks. Of course, any nontax considerations also will be important in any decisions you make regarding income deferral.
2. Time-deductable Expenses – Timing can be important on the expense side of the tax picture. If you itemize your deductions, you may be able to increase your deductions and cut this year’s tax bill by paying certain deductible expenses early, such as state taxes. Medical expenses and miscellaneous expenses deserve special attention because they are subject to deduction “floors.” Other time-deductible expenses may include the following:
- Paying professional dues, subscriptions to professional journals, and investment management fees before year-end could help you surpass the 2% of annual gross income floor on the miscellaneous itemized deduction.
- Making a year-end donation to a qualified charitable organization can reduce your tax bill. Using your credit card will enable you to make the donation in 2011 yet pay for the donation in 2012. You may also write a check and mail it as late as December 31, 2011 and still claim it on this year’s tax return. Just ensure that you are able to track your donations with receipts of payment in case of audit.
3. Protect Capital Gains – If you are reluctant to part with “losing” stock because you believe it still has potential, you may consider selling your shares to secure the tax loss and wait 31 days to replace them. Or you can buy more shares of the same stock and sell them 31 days later while selling your original shares at a loss. Either way, you will avoid the wash-sale and preserve the tax benefit of the loss.
There are many other tips that will save you time and money during this upcoming tax season. Talk to an experienced accountant or CPA to learn more about how to maximize your tax return.
This article should not be construed as tax advice from Bank of American Fork. Please seek tax advice from a qualified tax professional.