Authored by Nathaniel J. Krautkramer
Given the timing of this inaugural tax blog post, I thought that it would be fitting to discuss tax planning issues that individuals and small businesses should consider now that the April 15th Tax Day has come and gone. So, following the traditions of David Letterman and innumerable other internet sites, I am presenting a numbered list of ideas for you to think about before putting away your tax records for another year.1) File your returns.
If you have not filed a return for 2014 or an extension request, then you need to get your state and federal income tax returns prepared and filed. The failure to file penalty under Internal Revenue Code (IRC) section 6651(a)(1) is more commonly known as the late payment penalty. The penalty for filing your income tax return late is five (5.0%) percent of your unpaid taxes for each month or part of a month that the tax return is late, up to a maximum of twenty-five (25%). Businesses face a similar penalty if they fail to timely file quarterly employment tax returns on form 941. You should file the returns, even if you cannot afford to pay the taxes that are due, in order to avoid these penalties.
What if you have failed to file tax returns for several years? Over the last eleven years of practice I have helped a number of clients who have been in this situation. Now is the time to act – after the busy tax season, your local accounting office will have the time to sit down and work with new clients. A good tax professional can help you put together several years’ worth of returns, even if your records were lost or not properly maintained. Once the returns have been filed, I can assist you in dealing with the tax debts that have accumulated, either by entering into an installment payment plan with the tax agency or by pursuing an offer in compromise with the IRS or Wisconsin Department of Revenue seeking a settlement for less than you owe.2) Avoid the penalty for not having health insurance in 2015.
Open enrollment on the national health care exchange has ended for 2015. However, if you owed a fee on your 2014 taxes for not having health coverage do not yet have health coverage for 2015, you may still be able to get coverage for 2015. The fee for not having health insurance coverage increases in 2015 to the greater of $325 per person or 2% of your household income. This can be a significant cost. Fortunately, there is a special enrollment period on the national health insurance marketplace open until April 30, 2015, which may help you avoid this penalty. If you owed the fee for 2014, and either did not know that the new health care law required you to have health insurance coverage until after the February 15, 2015 open enrollment period ended or you did not understand how that requirement would affect you or your family, then you may qualify for this special enrollment period. You can learn more by visiting: https://www.healthcare.gov/blog/tax-penalty-special-enrollment-period-for-2015-health-coverage/
Remember, though, that this opportunity is only available through April 30, 2015.
3) Increase your retirement savings.
Would you like to reduce the amount that you owe in taxes next year? If you are reading this, then the answer is probably a resounding “Yes”. One of the easiest ways to do this is to contribute to a tax advantaged retirement plan. If your employer offers a 401(k) plan with a matching contribution, you are literally giving up several thousand dollars of free money each year by not electing to at least contribute up to the amount that the boss will match. If you already participate, consider increasing the contribution amount. You will lower your adjusted gross income, which may qualify you for additional deductions; in addition, you may not even notice much of a change in your take home pay, because the additional amount removed from your paycheck may be offset by the lower state and federal payroll taxes. Self-employed individuals can accomplish the same goal by contributing to a SEP IRA, and if you filed an extension request for your 2014 taxes you can still have a contribution applied towards tax year 2014 if it is made before the extended filing deadline.
If you are an employer, and do not currently offer retirement plan options for your employees, now may be the time to consider implementing a plan. Contributions to your employee’s accounts are tax deductible, and you may qualify for tax credits for starting the plan. Offering the plan will also help you to attract and retain employees, and reduce your payroll taxes. 4) Adjust your withholding or estimated tax payments.
If you received a large income tax refund this year, you effectively gave the Internal Revenue Service or Wisconsin Department of Revenue an interest free loan in 2014. Reduce the amount withheld from your paychecks and you will have control over those funds, instead of waiting for them to be returned to you in the weeks or months after your returns are filed. If you are self-employed, then spring and summer represent a good time for you to review your year-to-date income and expenses in order to determine if you are making adequate estimated tax payments. Remember, you will face penalties if you do not pay an adequate amount of estimated tax payments over the course of the year. 5) Review your deductible expenses.
If your tax returns have been filed, take a moment to review your records to determine if you were able to fully utilize potentially deductible expenses. Many deductions are subject to minimum floor amounts that you must exceed in order to claim a deduction. For example, in 2015 you can only deduct the portion of your medical expenses that exceed ten (10%) percent of your adjusted gross income. If you know you will have large medical expenses this year, it may be the time to schedule elective procedures so that you maximize your deduction. If you and your siblings are caring for an elderly parent or parents, determine who will claim each person as a dependent and structure your support payments accordingly. Businesses will once again be allowed up to $25,000 in write-offs for assets placed in service in 2015, under section 179. Now may be a good time to replace old equipment or purchase new items. Finally, if you are interested in increasing your charitable giving in 2015, this time of year is often one of the slowest for charities who serve communities all year long but see the majority of their donations at the end of the year; take the time to do some good and help your bottom line.
Hopefully this article will encourage you to take steps now to improve your tax status for 2015.
For more information about this and other tax law issues, please contact me by email
or call at 715-842-2162.This blog post contains general information regarding public news, matters, and developments in the law. None of the information contained on this blog post is intended as legal advice or opinion relative to specific matters, facts, situations, or issues. Additional facts and information or future developments may affect the subjects addressed and no guarantee is given that the information provided in this blog post is correct, complete, and up-to-date. Consult with an attorney before acting or relying upon any information contained in this blog post.