Don’t feel alone. You don’t have to be a search engine whiz to discover that 77% of Americans saw their taxes increase in 2013 (the most recent tax data available). To add insult to injury, it hasn’t stopped there for many of us. Itemized deductions are disappearing, we have two new taxes to fund Obamacare and increase Medicare support… and it doesn’t stop here.
We just returned from a conference which included a legislative update. The consensus from Prudential’s legislative research group is that we won’t see a tax overhaul until at least 2017. However, this doesn’t mean the status quo will remain the same. There is a lot of government pressure to spend (for example: our highway reconstruction). Which means…they have to find a way to pay for it - and because of recent tax proposals, they have the tools at the tip of their fingers. Most likely they will pick pieces out of these proposals to fund government projects and the result will be additional tax hikes.
What most Americans don’t know is that taxes, to a certain extent, are voluntary. A small business owner has 171 deductions available to him. Yet how many of these deductions do you think the average business owner takes? Only 23!
This is not a reason to get upset with your CPA or accountant: Most of these professionals design their business to help you file your taxes appropriately, identify the obvious deductions you can take, and help you in the event you have to face the IRS head on. Not many of them have a business designed to find out everything about your unique situation, future and goals, family dynamics as well as strategies implemented with your other advisors. This is a process which takes multiple hour meetings, multiple times per year. In other words, your CPA or accountant is most likely doing the best job they can for you given your relationship with them.
However, it is a reason to find out what you don’t know that can help you.
For the same reason your CPA hasn’t been able to help you identify every deduction right for you, we can’t in a single article. Truth be told, if taxes are a thorn in your side, you need to weigh the cost of not taking the time to do some extensive planning with your professionals. But what we can do in this article is make you aware of a few, basic end-of-year strategies before it is too late for 2015.
#1- Max out your retirement plan with your employer to defer taxes on any amount you contribute. Don’t know the maximum amount? Click here to find out!
#2- Look for losses. The recent downturn in the market may have created opportunity for you to take some losses to offset your gains or other income.
#3- Don’t forget about your Health Savings Account. Some of you may be able to defer as much as $7,650 that can come back to you tax free when you need healthcare.
#4- Big income year? Use a Donor Advised Fund to get a charitable contribution deduction this year and decide where it goes later. Pay your January mortgage payment in December if they will post the interest payment early. And/or simply postpone income into 2016.
#5- Take advantage of potential Congressional extensions for the “just in case.” Send your Required Minimum Distribution directly to a charity to avoid it even showing up on your tax return. Take advantage of Section 179 deductions and consider making the purchase to update cars, equipment or software.
Out of pure curiosity I did a little research to total up the amount of taxes a mid-income homeowner living in Ft Worth, Texas would pay this year. Assume this person makes $100,000 per year, lives in a $200,000 home and spends $4,000 a month on taxable items. Any guesses? This average income earner would pay a whopping $38,226.25 in taxes! The really bad news is most of you reading have a lot higher income than just $100,000 per year.
My challenge to you this week if to figure out what your total tax bill was for 2014- federal taxes, state taxes, property taxes, social security and Medicare taxes and the approximate sales tax you paid. If you have procrastinated planning until now, I bet you won’t anymore after you know that number. And to help you stay focused, let us know your number. We will play quarterback for your tax planning team to pay Uncle Sam only what is “NOT” voluntary.