Working as an accountant for more than thirty years, I’ve heard it all when it comes to tax advice. I could write a thesis on the subject. But I realize that, truthfully, most people don’t really like to talk about taxes. I understand. So I’m going to boil it all down to one list of 10 simple tips – The Best Tax Advice I’ve Heard… Ever
- File a tax return. No, I’m not being sarcastic. I’ve had clients tell me that they’ve heard they shouldn’t file a return if they don’t have the money to pay their taxes. That’s complete nonsense. You have to file a tax return. The IRS will usually work with you in terms of payment if you don’t currently have enough to pay the entire bill. And, quite honestly, you could face criminal charges if you don’t file a return.
- Open mail from the IRS – immediately! I know it’s tempting to put off things you don’t like to do… like opening mail that has a return address reading IRS. If you let the mail sit, you might lose it and/or miss an important deadline.
- Be organized. Don’t toss receipts or shove them into the closest drawer. File and store all bank, broker and mortgage statements, as well as receipts. Then when ‘tis the season,’ you can find everything easily and pass along to your accountant.
- Report all income. If you don’t, you could face criminal charges.
- Use Flexible Spending Accounts (FSAs). Money put in flexible spending accounts and used for health care, child care and travel expenses is considered nontaxable income.
- Contribute to tax-advantaged retirement accounts. If you are an employee, you should put as much money as possible into your 401k and IRA accounts. These contributions reduce your taxable income.
- Save for college with a 529 plan. Money put into 529 plans is usually tax-deductible. You will not pay taxes on the principal as it grows. And, as long as you don’t withdraw the funds early, you won’t pay taxes on them.
- Hire help. If you can’t stomach dealing with the IRS, you can hire somebody to do it for you… somebody like me. If you hire an accountant and list that person as the third party designee on your return, you will not have to discuss your tax return with the IRS.
- Be honest about the details. “Oh, by the way, I forgot to file a tax return last year.” “Oh yeah, I’m not legally married.” “Actually, I do have a child from a previous relationship.” These are some of the bombshells I’ve heard over the years. It’s best to get all the gory details on the table before an accountant starts work on your return. It’s nothing but the truth for the IRS.
- Don’t delay! Enough said.