Tim Krause, CPA, Offers Tax Planning Tips To Protect Your Assets

As experienced tax professional Tim Krause, CPA, contends, getting the most out of your tax return requires year-round planning, and it’s never too early to start strategizing. Consider these helpful tips from Tim Krause and other tax professionals.

The tax code is filled with an array of credits, deductions and tax planning opportunities. To take advantage of them, you have to think ahead, according to Tim Krause CPA, president of Krause CPAs & Business Advisors. “The best way to protect your assets and boost your net worth is to be proactive about planning your taxes throughout the year,” he explains.

The first step is to develop and maintain an organized record-keeping system. Be sure to keep a file or folder for all receipts, pay slips, expense reports, and other relevant documents that prove your expenses. Alternatively, you can scan these and have electronic copies easily available at the end of the year. This will save your tax preparer time at the end of the year, and provide you with a great electronic back up. Staying organized will make next year’s tax season headache-free. When your paper files become unwieldy, you might consider going paperless. Many banks and financial institutions allow clients to download records digitally.

For those who are self-employed or work at home, home offices can be a rich and oft-overlooked source of tax rebates. According to Forbes, 26 million Americans have home offices, but only 3.4 million of them claim deductions for home office expenses.

According to the IRS, taxpayers must prove that their home is the principal place of their business in order to qualify for home office deductions. But even if you work elsewhere and use your home principally, you can qualify for these write-offs. In fact, if you have a designated place in your home for meetings or other work tasks, but work elsewhere primarily, you can still add deductions for such home office expenses. You can also deduct expenses for freestanding structures including a garage, studio, or barn if that is used for your business exclusively and on a regular basis.

One of the best ways to increase your return is to make a charitable contribution of appreciated securities. This may include stocks, bonds or mutual funds that have appreciated in value over a long time, Tim Krause CPA, explains. Those with unrealized gains can be deducted at the full fair market value, without paying tax on the appreciation in value

Making charitable donations of any kind is always a good way to reduce taxes next year. Keep in mind that you must donate to an IRS approved organization in order to realize a benefit, which does not include political organizations, people or candidates. You must file a Form 1040 and itemize deductions.

According to Tim Krause CPA, any contributions of $250 or more require additional documentation, such as bank records and written acknowledgements from the organization with information about the donation and whether any goods or services were received.

In some cases, you may need to make strategic adjustments to avoid certain tax surcharges. The net investment income surtax (NII) applies 3.8 percent tax to those individuals, estates and trusts that have a modified adjusted gross income above a certain amount.

Krause advises that tax-exempt interest on municipal bonds can reduce NII. Furthermore, keep in mind that some investment incomes would not be subjected to the NII tax, including unsold non-dividend paying growth stocks. In general, you will want to reduce your taxable investment income as much as possible to avoid the NII tax. This includes interest, dividends, capital gains, and passive corporations and partnerships.

If you’re self-employed, another way to give a boost to your tax return is through a Simplified Employee Pension (SEP). You can deduct contributions you make and set up a retirement plan with any institution you prefer.

For those of you who cannot contribute to a ROTH IRA because your income in too high, consider the use of the Backdoor IRA. The Backdoor IRA is a technique for contributing to a ROTH when your income exceeds certain limits.

You can be strategic with your capital losses by selling appreciated stock when gains are equal to losses. By contributing the proceeds to tax-benefitted investments, such as a Roth IRA, you can expect a more generous tax return. Moreover, you can avoid wash sale by reinvesting after 30 days are up.

Your investment strategies always play a major role in boosting your return. You should consider ways to participate in S corporations and partnerships, as this can reduce investment income and will likewise reduce your net investment tax. Be sure to deduct any fees you paid to manage your investments, as well as margin interest.

Most importantly, remember to keep your tax filing status updated as necessary if you go through a major life event that changes your individual tax withholding status. If you have a child, buy a house, or get married, that means it’s time to update your W-4.

There’s nothing worse than overpaying your taxes, and this is a mistake that far too many Americans make. If you regularly receive a large refund at the end of the year you are simply making an interest-free loan to the federal government. Not only is it important to itemize all of your deductions; you must also strategically coordinate your investments and donations so as to make the most out of your return. With advice from experts like Tim Krause CPA, you can be confident that you are protecting your assets and getting the return you deserve.

The information in this article is general in nature and is not offered as tax advice. Accordingly, you should not implement any of these strategies without the guidance of your professional tax advisor.

Please see www.krausecpa.com for more information on SEP and other tax tips.

Carly Fiske contributed to this article