Do-it-yourself or hire an accountant? The crucial choice in tax returns preparation

Image credit: rollingout.com

In taking on a Herculean task of tax returns preparation, hiring the services of tax experts, such as Maryann Schugmann and Isidor Hefter, proves to be most convenient. Even though it might be daunting in itself due to the prospect of professional fees, nothing can pay the price for the peace of mind brought about by having a trained professional look at one’s overall tax situation. Having a professional prepare one’s taxes eases the problem of looking over the returns, making the necessary corrections, and finalizing the tax returns. Moreover, tax analysts may also provide valuable proposals, such as ways on how taxpayers may reduce their taxes.

Image credit: work.chron.com

Meanwhile, the do-it-yourself way of tax returns preparation also presents its own unique set of perks. First off, it enables individuals to have full control over their tax returns and lets them decide on the pace by which the process will take place. By employing this method, individuals can also get to see firsthand how the different parts of one’s financial situation can come to affect the overall status of taxes. Though this approach has been made easier and more practicable by technology in recent years, it may still take a lot of practice before one can gather enough experience to truly master this skill.

Image credit: mkcpafirm.com

Isidor Hefter, CPA, specializes in tax planning and research for corporate and high net worth individuals. Learn more tips on tax planning by following this Twitter account.

Surviving the US tax cliffhanger: The importance of stock redemption in year-end tax planning

Image credit: crunchbtp.com

This year may prove to be a difficult time for many large US corporations. Many tax provisions will already expire by the end of the year, and the Congress is still ambivalent on what to do with regard to the proposed changes. As pointed out by Thomson Reuters, a majority of these susceptible rules are important. For example, provisions like business research credit, bonus depreciation allowance, and Bush-era tax cuts may either be extended or vetoed should the Congress decide to. This lack of certainty makes year-end tax planning all the more crucial and challenging at this point. 

Image credit: 123rf.com

In light of this impending dilemma, Marian Rosenberg, a senior tax analyst at Thomson Reuters cites “stock redemption” as a way by which US corporations could “lock in low tax rates for shareholders, avail themselves of the work opportunity tax credit, and secure generous depreciation and expense deductions.”

According to Rosenberg, corporations could actually qualify for a 15 percent tax rate on the distribution if they consider taking money out of the business through stock redemption before 2012 ends. If the provisions on Bush-era tax cuts expire at the end of 2012, profits will be threatened as “long-term gains will be taxed at a 20 percent rate and dividends will be taxed as ordinary income at a rate of up to 39.6 percent.” 

Image credit: guidance.fidelity.com

As with all other cases, careful planning may save business entities from any imminent sources of loss. However, it is still important for corporations to consult with qualified tax advisors such as Hilton Sokol, Isidor Hefter, or Maryann Schugmann before enacting any major strategies to ensure higher success rates.

More tips on tax planning may be accessed at this Twitter account.

Tax Planning Basics: 3 Ways to Reduce Taxes

Still new to tax planning? This article from Taxes.About.com provides three invaluable ways by which you can cut back on your taxes.

The goal of tax planning is to arrange your financial affairs so as to minimize your taxes. There are three basic ways to reduce your taxes, and each basic method might have several variations. You can reduce your income, increase your deductions, and take advantage of tax credits. 

Reducing Income

Adjusted Gross Income (AGI) is a key element in determining your taxes. Lots of other things depend on your AGI (or modifications to your AGI)-- such as your tax rate and various tax credits. AGI even impacts your financial life outside of taxes: banks, mortgage lenders, and college financial aid programs all routinely ask for your adjusted gross income. This is a key measure of your finances.

Because your adjusted gross income is so important, you may want to begin your tax planning here. What goes into your adjusted gross income? AGI is your income from all sources minus any adjustments to your income. The higher your total income, the higher your adjusted gross income. As you can guess, the more money you make, the more taxes you will pay. Conversely, the less money you make, the less taxes you will pay. The number one way to reduce taxes is to reduce your income. And the best way to reduce your income is to contribute money to a 401(k) or similar retirement plan at work. Your contribution reduces your wages, and lowers your tax bill.

You can also reduce your Adjusted Gross Income through various adjustments to income. Adjustments are deductions, but you don't have to itemize them on the Schedule A. Instead, you take them on page 1 of your 1040 and they reduce your Adjusted Gross Income. Adjustments include contributions to a traditional IRA, student loan interest paid, alimony paid, and classroom related expenses. A full list of adjustments are found on Form 1040, page 1, lines 23 through 34. The best way to boost your adjustments is to contribute to a traditional IRA.

As you can see, two of the best ways to reduce your taxes is to save for retirement, either through a 401(k) at work or through a traditional IRA plan. Contributions to these retirement plans will lower your taxable income, and lower your taxes.

Increase Your Tax Deductions

Taxable income is another key element in your overall tax situation. Taxable income is what's left over after you have reduced your AGI by your deductions and exemptions. Almost everyone can take a standard deduction, and some people are able to itemize their deductions. Itemized deductions include expenses for health care, state and local taxes, personal property taxes (such as car registration fees), mortgage interest, gifts to charity, job-related expenses, tax preparation fees, and investment-related expenses. One key tax planning strategy is to keep track of your itemized expenses throughout the year using a spreadsheet or personal finance program. You can then quickly compare your itemized expenses with your standard deduction. You should always take the higher of your standard deduction or your itemized deduction.

Your standard deduction and personal exemptions depends on your filing status and how many dependents you have. You can increase your standard deduction and personal exemptions by getting married or having more dependents.

The best strategies for reducing your taxable income is to itemize your deductions, and the three biggest deductions are mortgage interest, state taxes, and gifts to charity.

Take Advantage of Tax Credits

Once we've tweaked our taxable income, we are ready to focus our attention on various tax credits. Tax credits reduce your tax. There are tax credits for college expenses, for saving for retirement, and for adopting children. The best tax credits are for adoption and college expenses. Not everyone is in a position to adopt a child, but everyone could take some college classes. There are two education-related tax credits. The Hope Credit is for students in their first two years of college. The Lifetime Learning Credit is for anyone taking college classes. The classes do not have to be related to your career.

You may also want to avoid additional taxes. If at all possible, avoid early withdrawals from an IRA or 401(k) retirement plan. The amount you withdraw will become part of your taxable income, and on top of that there will be additional taxes to pay on the early withdrawal.

One of the best, and most abused, tax credit is the Earned Income Credit (EIC). Unlike other tax credits, the EIC is credited to your account as a payment. And that means the EIC often results in a tax refund even if the total tax has been reduced to zero. You may be eligible to claim the earned income credit if you earn less than a certain amount.

Increase Your Withholding

You can avoid owing at the end of the year by increasing your withholding. More money will be taken out of your paycheck throughout the year, but you will get bigger refund when you file your taxes.  

Source: http://taxes.about.com/od/taxplanning/a/taxplanning.htm