Cindy Hockenberry
Cindy Hockenberry
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People forget about tax credits and they don't take all the deductions to which they're entitled. That happens all the time.
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I'd be willing to bet this is going to be the No. 1 line on the whole 1040 that gets messed up. There are a lot of partnerships and pass-through entities that qualify ... there are more people affected by this line than you might think.
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More and more people are going to fall into the alternative minimum tax trap unbeknownst to them until they get the nice letter from the IRS that says it appears you are subject to AMT.
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It's pretty common for people not to consider all the things they can deduct. They don't realize that maybe they have a vacation home and they don't take the interest because they think they can't.
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They basically just got rid of the flat definition which said a foster child is any child you care for as your own and cared for the entire year. In a way, a lot more people could qualify for the Earned Income Credit than did before.
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A lot of anxiety is created by people when they think about filing their tax return. It's like going to the dentist. Just do it and get it over with.
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I would suggest people start out by asking how long they've been in business, what their background is, and do they have a degree, which isn't required. Have they been in the area for a long time? Are they open all year? Do they stand behind their work?
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People often wait until the last minute to get this done and realize they can't do it this year. Another reason they should plan early is so they can notify their employees so they can start deferring their money.
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You'd be surprised: Many people think that if they throw their audit letter away it's gone. But it's not. The IRS isn't going to leave you alone. They'll keep at you until they get their audit.
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Sometimes it is fun to go back and look at old tax records. But for reasons other than nostalgia, it's not necessary to hold on to most of your records for more than three years.
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That's the sweet spot. Then you know you had your money all throughout the year and weren't giving Uncle Sam an interest-free loan.
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It all comes down to whether you're defined as a trader or an investor. There's so much misinformation out there on the distinction, because the IRS hasn't really issued definitive guidelines on it.
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June is a good time to sit down with your tax practitioner and review things to date. If you wait until later it is going to be harder to catch up.
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Because of the way this form used to work, it calculated the tax as if you had received the money over a five-year period. You would divide it into five equal parts and pay taxes on each of those parts which significantly reduced your tax bill.