If you’re like me, tax time is one of my least favorite times of the year. There’s a lot of stress associated with getting your taxes done. You already have a busy schedule and to add doing your taxes on top of that can be a nightmare. That’s why I’ve put together some ideas and tips to make it easier for you!
Tip #1: Cash in on Low Capital Gains Rates Before 2011
Currently, capital gains tax rates are based on taxpayer adjusted gross income. The highest rate is 15 percent for individuals in the 25 percent to 35 percent tax brackets. Earners in the 10 percent and 15 percent tax brackets pay no capital gains tax.
That’s going to change in 2011. The top rate will return to 20 percent and the zero rate will revert to 10 percent. It’s likely that with the federal deficit, the top capital gains rate will possibly increase even more. If you are in a higher income bracket and could eventually face higher capital gains taxes, speak with your tax and investment advisors about whether taking gains now at the lower rates fits your portfolio plans.
Tip #2: Be Aware of Rising Income Tax Rates
Several tax cuts are set to expire at the end of 2010. The top income tax rate is scheduled to return to 39.6 percent from the current 35 percent and the 10 percent bracket would be eliminated.
Higher-income individuals might be facing increased taxes in 2011. If you could be affected, start planning now with your tax and financial advisors about what steps you can take to soften the tax blow.
There has been some talk that growing deficits could prompt rate hikes ahead of schedule, so strategizing would be a good discussion to add.
Tip #3: Hire an accountant
The best money I spend all year is to have an accountant do my taxes! If you’re pulling your hair out with Turbo Tax or other do-it-yourself methods, value your time at a higher rate and outsource your taxes. They will likely pay for themselves by finding more deductions, especially at next year’s higher tax rates!
I complete an organizer, drop it off or meet with my accountant to review it, and she does the rest. It costs me about $300 and I’m happy to pay it! It relieves a lot of stress from my life that I used to feel at tax time. A good CPA is worth it, especially as taxes increase and the risk of missing a deduction costs you money. You can likely use the time you’re spending on taxes for a money generating activity, so the cost can even pay for itself.
Tip #4: File an extention
According to WorldWideWebTax, you can get an automatic six-month tax extension for filing Form 1040, Form 1040A or Form 1040EZ by filing Form 4868,Application for Automatic Extension of Time to File U.S. Individual Income Tax Return on or before April 15th (April 17th for 2006). By filing the extension tax form, you avoid the late filing tax penalty. However, Form 4868 does not extend the time to pay your tax. You must pay the amount of the tax estimated to be due for the tax year. Interest will be charged on unpaid tax from the original due date of the tax return.
This may alleviate some stress since you can do your paperwork a little more leisurely. Just be sure you’ve already paid the tax you owe, because there’s no extension on the tax due!
Tip #5: Get better organized for next year
Author David Bach has a good filing system to organize your bills and receipts. This can save you time, energy, and stress. Besides hiring an accountant, this is a good way to streamline the process. Here’s the link:
Tip #6: Be nice to your CPA and Financial Advisor
Income tax season is getting down to the wire. Be nice to your CPA and Financial Advisor. They’re working long hours under a lot of stress to help you and a lot of people get things done by the deadline!
You’re going to feel much less stress in your life if you follow these tips. You’ll also save 24 to 30 hours since that’s how long the average American takes to do their taxes. If you outsource and file an extension, tax season is a piece of cake!
Tax Freedom Day
Tax Freedom Day is the day you stop working to pay your taxes and begin to earn for yourself. I looked up the data at the Tax Foundation to see when Tax Freedom Day occurred in the two states I live in. They take into account taxes at the Federal, State, and local levels.
In WA, it’s right on the nose at April 15th and it ranks as the fifth highest state for tax (even without a state income tax). CA was ranked #7, with 104 days, taking it to April 14th. Neighbor Oregon is #20 with 98 days to April 8th.
Interestingly, #1 was Connecticut at 117 days until April 27th. At #50 was Alaska with 85 days to March 26th.
Find tax freedom day for your state here: http://www.taxfoundation.org/taxdata/show/387.html
By following these tips, hopefully your tax freedom day will come sooner next year!
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Disclaimer: This is not tax advice. Please consult a CPA for tax advice regarding your individual needs.
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