The Valdosta Daily Times
Hopefully at this point, you've either filed your taxes for 2012 or you've filed for an extension. For some of us, filing taxes was simple, the culmination of a year of careful note taking and paying diligent attention to any changes in tax laws. For the rest of us, filing taxes was an Indiana Jones-esque trek through receipts, bank statements and tax forms with names resembling robots from Star Wars.
But, if we start planning now for next year, we'll find ourselves in a much better position next January.
“Beginning-of-the-year tax planning is key,” said Mark Buescher, CPA, owner of Buescher & Company.
But before we get into general planning, we need to talk about the new healthcare law that affects 2013.
The law phases in many of its provisions over several years, with three main things being added this year.
First, the 7.5 percent income threshold for deducting unreimbursed medical expenses increases to 10 percent for taxpayers under age 65. For example, if your income for the year is $100,000 and you spent $15,000 on unreimbursed medical expenses, last year you could deduct $7,500 of that; this year you can only deduct $5,000.
Secondly, contributions to health care flexible spending accounts—FSAs, or as they're sometimes referred to — “cafeteria plans”—are limited to $2,500.
Thirdly, there are new Medicare taxes for single earners with income exceeding $200,000 and married taxpayers with income exceeding $250,000. With earned income exceeding these limits, a 0.9 percent Medicare surtax will be imposed. For unearned income —interest, dividends, capital gains, etc.— exceeding these limits, a 3.8 percent tax will be implemented.
“These changes could affect your 2013 withholding or quarterly estimated tax payments.”
So, besides being aware of the new changes, what can you do in general to plan?
The first thing Buescher advises is looking back over your 2012 return.
“If you have a sizable refund of your 2012 taxes, it may be time for you to check your withholding. After all, when you overpay your taxes, you are making an interest-free loan to the government.”
To reduce the amount you withhold, you need to fill out a new W-4 with your employer, but, Buescher cautions, “don't forget to allow for other taxable income besides wages, such as dividends or investment gains.”
Also, investigate your pre-tax fringe benefit options. The new Medicare taxes are assessed on wages subject to Medicare tax; certain things, such as contributions to retirement plans and health insurance premiums paid under an employer's cafeteria plan, may be exempt from the tax.
And don't forget the records.
“Keep good records,” said Terry Conley with TC Tax Service. “If it takes you three to four days to find and get everything together, then you need a better system.”
Recent changes with the IRS requires much more documentation for filing taxes. If you're claiming children as dependents, you need proof. If you're claiming job mileage, you need proof. Same for charitable contributions,
“For mileage, the IRS just requires you to keep consistent, written records,” said Conley. “A calendar at home you write on every day, or a logbook in the car, which is what we recommend.”
“Every year, many of our clients ask us ‘How long should we retain tax records?’” said Buescher. “To be on the safe side, keep records supporting your tax return for seven years, and save copies of the tax returns themselves permanently because you might need information in the returns for other purposes.”
There is an important exception though. If you're depreciating an item instead of expensing it, you need to keep records on it until seven years after the year it was removed from service.
And with today's technology, keeping records is easier than ever. Both Buescher and Conley advise clients to keep electronic records.
“I'd advise using Quicken and making a computer spreadsheet to put receipts,” said Conley.
“You can purchase a scanner and scan your records into your computer system in relatively little space,” said Buescher. “As long as they can be readily produced for the IRS.”
For more on this story and other local news, subscribe to The Valdosta Daily Times e-Edition, or our print edition.