Tips to become a Tax Savvy Gal
By Kelly Flaherty of Kelly Flaherty CPA, LLC
It’s that time of year again - you guessed it, Tax Season! Over the years, I’ve seen my clients go through the headaches that the April 15th deadline brings, especially when they are not prepared. Their returns are filed at a great cost to their sanity, so they vow to do better next year. But what ensures the success of their next Tax Season is the mere fact that they didn’t wait to make changes until the following January. Instead, they implemented techniques to get their financial house in order starting the day after Tax Season ended. Based on my experiences both as a CPA and a taxpayer myself, I’ve listed 5 tax tips below to help you become a tax savvy gal who looks forward to Tax Season rather than shy away from the annual burden. I’m here to tell you that it is possible to avoid this headache next year!
Tax Tip #1: Don’t Procrastinate
This is the easiest way to ensure your Tax Season isn’t as stressful. Waiting until the last minute has proven time and time again to elicit a stress related response that can wreak havoc on your state of mind. As soon as you can file (which is around the end of January each year), FILE! Don’t wait to start until April 15th to get everything in order.
Sometimes, you have to wait on documents to come in which makes it difficult to file early. Don’t fret - you have another option. File for an extension! You’ll have until October 15th to revisit your taxes when there is less pressure to get it done. Don’t be afraid of an extension. The IRS doesn’t red flag your account just because you file an extended tax return - even every year. In fact, when I was with a larger firm, we filed extensions for about 95% of our clients.
If you can, filing early also helps prevent the possibility for tax refund theft which is becoming more and more common these days. (HERE) is an article put out by TurboTax that details the steps to dealing with Tax Refund Theft. You can also reach out to your tax return filer for help in addressing this issue if your electronic submission is denied.
Tax Tip #2: Be Organized… Throughout the Year
This is as simple as keeping a folder in your desk or on your laptop that houses all relevant tax documents. Err on the side of caution! If you think it’s tax related, then it probably is, so keep track of it. This will ensure that you won’t miss anything when it comes time to complete your tax return.
For small business owners, I have a whole host of tips to help keep you organized, but for the sake of time, I’ll detail my number one tip to help you deal with Tax Season:
Keep your books in order - These days, there are a multitude of options when it comes to keeping track of your accounting. My favorite is the tried and true, QuickBooks option. If you are a sole proprietor in the service industry, then you should be okay using the QuickBooks self-employed version which will help you keep track of mileage, a home office deduction (if applicable), invoicing, and estimated tax payments (discussed in more detail below). This subscription also has a direct plugin to TurboTax, so this can help make Tax Season a breeze. The more involved QuickBooks Online subscription is preferred for folks that anticipate adding payroll processing to their needs as well as they might have more complex product inventory to keep track of. You will still be able to keep up with mileage and invoicing, but you will lose the estimated payment and home office features. I recommend keeping a spreadsheet of your home office information (e.g. rent, utilities, renter’s insurance) throughout the year, so when it comes to tax time you won’t be digging through bills. I’ll discuss more below on how to keep up with these estimated payments. Most importantly, keep up with your receipts. You can do this through either QuickBooks self-employed OR QuickBooks online. If you are ever selected for an audit, this is the first thing they will ask for.
Tax Tip #3: Know When to Ask for Help
Asking for help doesn’t mean you have to turn to a CPA to get them to prepare your tax return for you. Instead, it can mean selecting a tax software that has a “CPA on demand” feature like the one TurboTax is offering this year. You can also pay for the “assurance guaranteed” option, if it doesn't come with your filing fee up front. This ensures that everything is appropriately presented on your tax return when you go to file. If there were ever any issues, you can then go back to the Tax Processor and ask for their help working through your issue. I can’t guarantee that they will completely solve your problem, but they can at least point you in the right direction. Every Tax Processor is different, so read their terms and conditions before filing your return.
When you go the route of having an experienced professional prepare your tax return, this can be as casual as going into an H&R Block or more involved as engaging a Tax CPA to help. The route you choose will come down to the fee you are willing to pay. Yes, you will pay more to have a CPA prepare your return, but they should provide white glove service to you before, during, and after Tax Season. Sometimes this can make a difference! In the end, select the option that works best for your sensibilities.
Tax Tip #4: Be Informed
There are a couple of user friendly outlets that will help you stay up to date on “Tax” and Small Business Topics. One easy way to keep up with new developments is to watch the news! There are often a lot of segments around Tax Season that help provide guidance from submitting your returns to personal finance advice. For small business owners, one of my favorite resources is through SBA.gov. Sign up for their email alerts and you will receive some great content on small business ownership considerations.
Being informed also alerts you to various tax deductions and credits that are at your disposal. This coupled with good tax planning can really help increase the odds that you won’t overpay on your taxes. You can also work with a financial planner who has a tax background to ensure that you are maximizing your deductions! I’ve seen my client’s tax bills decrease anywhere from 10% to 50% all because they had proper planning in place that paid off during Tax Season.
Tax Tip #5: Make Estimated Payments, if you need to
Making estimated payments ensures a higher probability that you could receive when you go to file your tax return. The IRS states that Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. This could result from increased business activity, capital gains from your investment accounts, and a multitude of other scenarios. The general school of thought is that you should try to split up your annual tax liability into 4 installments to be paid on April 15, June 15, September 15, and January 15.
Also, make sure you are withholding enough on your W2 (“salary”) as this can kick you over into a tax due position very quickly. Through the link (HERE) you can use the IRS’ Withholding Tax Calculator to determine if you’re withholding enough from your paycheck. If you need to update your withholding, contact your supervisor or HR advisor to complete a new W4.
In order to know how much your estimated payments need to be, you can use the tool through your QuickBooks Self-Employed subscription or even use the pre-filled payment vouchers that usually come with a copy of your previously filed Tax Return. If you want to take more of a DIY approach, you can also use the IRS guidelines (HERE) . Don’t forget to pay state estimated taxes too!
Final Thoughts
Please know that I cannot guarantee or be held responsible for the amount of any potential refunds. These tips are based on my experiences. Implementing some, if not all of these tips does help to increase the odds that your Tax Season could be less of a headache. I cannot stress this enough, if you need help, ask for it! You can contact myself or most any other CPA here in the Atlanta area. We have the resources in place to get you the assistance you need to make this Tax Season your best one yet. You only need to invest a little time over your year to become a Tax Savvy gal in the ATL. Empower and Educate - that’s my entire philosophy when it comes to the topic of Taxes. I wish you the best this Tax Season! You’ve got this :)
- Kelly Flaherty of Kelly Flaherty CPA, LLC
Need Kelly’s help this tax season? Click here to contact her!