Earnings and investment tax forms will start showing up in your mailbox over the next three weeks. Don't just wince and put them in a pile. Take control and make next year better.
Here are a few things you can do to help smooth doing your taxes and 2015 tax law changes that might affect you.
The Protecting Americans from Tax Hikes (PATH) act passed in December 2015 extended or made permanent some personal tax deductions and credits. Provisions made permanent include the American Opportunity Tax Credit (similar to the Hope education credit), child tax credit for low income, state sales tax deduction, earned income tax credit qualifications, Qualified Charitable Distributions from IRAs and the ability to open ABLE accounts (tax advantaged accounts for disabled individuals) outside of your state. Allowable educational expenses, such as computers, were added to 529 accounts.
Other items were just extended through 2016, such as contributions of property for conservation, mortgage insurance premium deduction, home debt discharge removed from income, higher education and teacher expenses deduction and energy conservation project deduction. Some taxes were delayed such as the tax on expensive health plans until 2017.
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When doing your 2015 taxes, you can use these deductions and plan for 2016. For example, if you are older than 70 1/2 and would like to give directly from your IRA to charity without the distribution tax burden, you can now make plans knowing the provision is permanent.
Now is the time to start preparing for your 2015 tax filing. Start gathering all your deductions, including educational expenses, energy improvements, medical and insurance expenses, mortgage interest, property tax and sales tax information. Employment W2s and 1099 forms are mailed at the end of January and investment 1099s come out in mid-February. If you have a partnership investment, you may have to wait on K-1 forms until March. Make a list of W2s, 1099 and K-1 forms you expect to receive.
Check them off as they arrive and if they are late, contact the companies. Don't wait until the last minute to get everything together. Much of this information can be obtained online from your investment, bank and mortgage accounts, or loaded directly into tax preparation software. This makes data entry easier if you do your own taxes.
Review your tax returns from last year to make sure you collect information that was needed last year. Check the tax changes to see if you qualify for any other deductions, credits or taxes and need additional items. Changes to investment tax and healthcare plan reporting requirements made in the last couple years have been areas where many taxpayers have filed incorrectly. High earners and those with investments have to file additional forms, and pay an additional tax. These provisions were put in two years ago and caused a lot of confusion. If you are not doing your taxes yourself or do not have a tax preparer, now is the time to find someone. Don't wait, as many preparers won't be able to help you when they have a full load of clients.
When you are finished, before you file away that copy of your tax form, spend a few minutes to see what it can tell you about your finances. Take time to review it yourself, or schedule time with your tax preparer or financial planner after April 15. You can quickly get an idea on how much you are spending, paying in taxes and saving for the future. Going over it in April will give you time to prepare for your 2016 taxes and reduce the end-of-year stress.
Even if you are retired, you may lower your Medicare insurance premiums by managing your investment and other income.
Preparing for and doing your taxes is not the most pleasurable activity. You can benefit now, reduce your taxes and stress in the future, by starting early and reviewing your 2015 filing. Get started now to make the most of your time and efforts.
Tom Roberts, president and financial planner with A New Approach Financial Planning in Lakewood Ranch, can be reached at 941-927-9590 or by email at Tom@ANewApproachFP.com.