“While many Americans are well-informed and prepared when it comes to filing their taxes, there may be some who could benefit from additional education or assistance to ensure they are getting the most out of the tax system,” Galstyan said.
Taxpayers Must Ask the Right Questions
Before filing your taxes and risking some of the negative outcomes listed above, get ahead of the problem and ask your tax specialist these critical questions.
1. Which tax bracket — or brackets — am I in?
There are seven distinct tax brackets that an individual may fall under based on their income. And a big misconception is many people think they’re taxed in only one percentage bracket.
“In reality, the IRS tax code is tiered, so a person might be taxed at 12% for a portion of their income up to a certain dollar level, as well as simultaneously taxed at 22% if they earn a greater amount of income,” said Tim Baker, a certified financial analyst at Metric Financial, Simsbury, Conn. “A financial adviser and accountant can help determine a person’s marginal tax rate, which offers a more accurate depiction of their overall tax liability.”
2. Should I max out my pretax retirement plan contributions?
“It depends,” Baker says. “Focus on what it will look like when you take withdrawals in retirement. Anything coming out of retirement accounts will be taxable as income.”
At the same time, anything you take out of a traditional brokerage account will incur only capital gains.
“Long-term capital gains generally are taxed at a lower rate than income, so it’s a good idea to spread your investments around,” Baker added.
3. Do you have a procedure to help me get organized for tax season?
Having a good plan in place makes it much easier to optimize your tax-filing experience.
“Basically, a plan makes it simpler for the tax filer and for the tax professional,” said TaxedRight.cm Founder Romeo Razi. “Specifically, ask your tax pro for a handout or other set of instructions to help pin down qualified deductions.”
For example, Razi forwards a PDF file to his clients that lists which deductions to consider every tax year.
4. How do you keep up to date with tax changes?
A good CPA or tax specialist should post any IRS updates and changes on a website or in an email note to clients.
“I also send clients to my newsletter, which provides them with up-to-date tax changes every two weeks,” Razi noted.
5. Should I file jointly or separately?
For married couples, deciding whether to file jointly or separately can have a significant impact on their tax liability.
“Your accountant can help you evaluate the pros and cons of each filing status and recommend the best option for your situation,” Galstyan said.
6. What steps can I take to reduce my tax liability for next year?
It’s always a good idea to plan ahead and take steps to minimize your tax liability for the following year.
“Your accountant can help you identify strategies and recommend actions you can take to achieve your longer-term tax savings goals, too,” Galstyan noted.
7. What do I do if I can’t pay my tax liability?
The Internal Revenue Service can charge you expensive fees and penalties if you don’t pay your taxes. That said, the agency will work with you to get on an installment plan and work out payment difficulties.
“This issue comes up quite frequently from taxpayers who don’t have enough withholding or are self-employed and failed to pay quarterly estimated taxes,” said Lee Reams Sr., co-founder of TaxBuzz, Newport Beach, Calif.
Source: The Street
With tax-deadline day — April 18 — only eight weeks away, Americans are working away at their IRS returns, facing all the usual difficulties.
