It is that time of year when we begin preparing for our taxes. If you’re preparing for your tax appointment only a few weeks in advance, you definitely have a problem! Here are my 5 quick tips for helping you prepare during the entire year for a tax return you know you’ll eventually have to file.
Beginning and ending mileage
Set an annually recurring alarm on your smart phone for New Years Day with the title “Take picture of odometer reading”. When the alarm goes off, take your phone outside and snap a picture of your odometer reading on each vehicle you use for business. This photo is now your proof of your ending mileage for the previous year, as well as the beginning mileage for the new year. If you’re deducting mileage on your tax return the first question about mileage in an audit is what your beginning and ending mileage was.
Confirm your income
You wouldn’t believe the amount of times I have clients who check to confirm that the income reported by their employer is correct only to find that there are inexplicable discrepancies. I once had a client who received a 1099-MISC for some contract work they performed. They earned $6,000 doing the job and the 1099-MISC showed earnings of $60,000. While that one may be easy to spot, I’ve seen others with smaller differences such as $2,000 more than what was earned. In a 22% tax bracket that could create $440 more in tax and you might have paid those extra amounts in the past if you aren’t confirming the amount shown on your tax documents. Use your family budget or another spreadsheet to keep a running total of gross income earned and check it against your tax documents at the end of the year. Let us know about any discrepancies!
Track your expenses monthly
If you write off any deductions on your tax return, you know how difficult it can be to track the expenses. I recommend to all my clients that they schedule a day each month, such as the last Saturday of the month, to review the past month’s expenses. Reviewing your bank account for the past 30 days isn’t a bad idea in and of itself but doing it in such small increments is also very fast and easy. Pro Tip: Use one of our convenient checklists to ensure you’re tracking all of the deductions for your employment or business
- Law Enforcement, http://molentax.com/wp-content/uploads/LE-Checklist.pdf
- Realtor, http://molentax.com/wp-content/uploads/RE-Checklist.pdf
- General Checklist, http://molentax.com/wp-content/uploads/Generic-Checklist.pdf
When using these checklists print off 13 of them, fill out one each month and then use the 12 you have completed at the end of the year to add up and fill out the final 13th checklist. Bring that final checklist to your tax appointment and feel confident you’re paying the least amount of tax allowable by law.
Mileage made easy
Mileage can be very difficult to keep track of consistently but a great item to deduct when preparing your taxes. I recommend you use a smart phone app to log your miles. My personal favorite is MileIQ, but there are many that will serve this function. Pro Tip: Make sure to keep a spare phone charger in the car, these apps will take a slightly larger toll on your battery than most.
Keep in contact with your tax preparer
At Molen & Associates we’re available year-round for questions. Preparing for your taxes doesn’t have to wait until your appointment. I can cite hundreds of cases of clients calling me during the year before they make big financial decisions and I’ve been able to help steer them in better directions. For example, one of my clients called me to let me know they were taking money out of their retirement account. When reviewing their information, I quickly determined that if they waited 3 months, they would be able to take the distribution without having to pay the 10% early withdrawal penalty. In this case it saved my client over $1,600 by making one quick call. Before making important financial decisions, you should reach out to us. Remember, you’re not calling to ask for permission, you’re calling to ask for advice.
Whatever advice we give, you can still make whatever decision you were going to make anyways, you’ll just do so with a full understanding of the implications of your decision. I hope at least a few of these quick tips will help you better plan for your tax return in the coming years. Remember, your tax filing is not something to simply get done and out of the way, for many people it is one of the most important financial events of the year. If you’re looking for more wholistic advice regarding your tax return and finances give us a call today and get a free 10-minute phone consultation with one of our tax professionals!
Tax Advisory Manager