There are plenty of people who believe the middle class foots the tax bill for the rest of the country. Despite your political leanings, if you fall into that middle class, you likely feel the crunch come April. Here are a few tax tips for avoiding a large tax liability at the beginning of each year.
Double-check Your Withholdings
Make sure your W-4 is accurate with all employers. Over claiming dependents on your W-4 may mean you get a few more dollars in your pocket every two weeks, but it can also increase your tax bill. At the same time, if you do not claim enough dependents, you overpay taxes during the year. Although that refund may be nice, it is better to get the money upfront and invest for yourself. If you are in a remarriage or divorce situation and are unsure about how many dependents to claim, you may want to ask a professional for advice.
Make Use of Small Business Write Offs
The current economic and job environment has sparked a number of creative income options among entrepreneurs. If you are a small business owner or self-employed, you can take advantage of special tax shelters. For example, you can write off premiums paid for health insurance. In some instances, you can deduct 100% of those premiums from your income, reducing the amount of money you have to pay taxes on.
Keep it on the Up and Up
If you hire household staff for tasks such as lawn care, cleaning or childcare, then you may need to pay employment taxes for those wages. You do not need to worry about taxes if you pay for a service through an outside company. For example, if you pay the local lawn care business $50 a pop to cut your grass, you are paying for a service and they are responsible for their own taxes. However, if you pay a person $10 per hour, three days a week to work in your home, you are effectively hiring them and must pay taxes like any other employer.
If all the deductions, credits, and tax burdens associated with personal finance are confusing, then you should consider using a tax preparation software program. These programs walk you through all the forms and offer plenty of tax tips for an accurate return that reduces your liability as much as possible. You can also use these programs to file electronically.
If you would like help with your taxes, contact Amy Boilard to schedule an appointment for a tax evaluation.