Keep detailed financial records, file your return electronically and sock away more money in your retirement plan.
Those are among the tips offered by area tax attorneys as the annual tax return filing season hits high gear.
If the attorneys agreed on one thing, it’s the need for good record-keeping.
“That’s always the first tip — substantiate everything,” said Brian Crepeau, a tax attorney with the Baltimore law firm of Rosenberg Martin Greenberg.
“You have to keep good records,” he said. “If you don’t, it’s going to cost you [at tax time]. It’s a lot cheaper to hire a bookkeeper to keep good records than to hire someone afterwards — like me — to fix the problems on the back end. … Keep good records, keep your receipts and hire a good, reputable CPA to do your return.”
Chaya Kundra, a tax attorney based in Rockville, offered another reason to keep good records: It can help you if you’re audited.
“If you’re hit by an audit, don’t go in there with a box full of paperwork,” she said. “It’s much better to be organized. It’ll make the audit go faster.”
On the subject of audits, Walter Stone, a tax attorney with the Baltimore-based law firm of Adelberg, Rudow, Dorf & Hendler, said you can help avoid them by hiring a reputable tax preparer and by making sure you report all your income — from all sources. The IRS gets your income statements as well, he said, and if it happens to discover that income went unreported, “it’s a definite red flag.”
Stone, a non-practicing CPA who’s been in the tax business for more than 40 years, also warned against making mistakes, such as entering the wrong Social Security number or a figure on the wrong line. And don’t file your return by mail, he said, especially if you have a refund coming.
“File electronically,” he said. “They’ll process it faster.”
Kurt Sturn, a CPA and tax partner at CohnReznick in Baltimore, said now is a good time to maximize putting money in your retirement plan, whether an IRA, 401K or something else. The money is not taxed, and tax rates have gone up for many.
“That makes it more important than ever to put money in a retirement account,” he said.
Stone said it’s not too late even now to put money in an IRA and still take the deduction this year. The deadline, he said, is April 15 — later if you file for an extension.
The attorneys also had more specific suggestions, tailored to individual circumstances.
Sturn, for example, said business owners should not wait until the last minute to come up with a succession plan for when they retire but instead should carefully plan the transition so they will pay the least amount in taxes.
“The best tax planning is good financial planning,” he said.
Chundra advised individuals or business owners with overseas accounts to take special care to report those accounts and come into compliance with government rules.
“The government is really cracking down on this,” she said, noting that the minimum threshold for reporting such accounts is a relatively low $10,000.
David Rosen, director of tax services at the Owings Mills accounting and business consulting firm RS&F, said business owners should take a hard look at the way their businesses are structured.
“It could have a significant impact on taxes,” he said. “There are certain advantages to different situations. They should consult with a tax adviser.”
He also said owners should examine their accounting methods, to see if they are getting the most advantages for their businesses.
“Incentives are disappearing, but there are opportunities out there to save money,” Rosen said. For example, if you’re in real estate, he said, you should file as a “real estate professional.”
As for individuals, he recommended taking full advantage of retirement plans and making investments that offer good tax advantages, such as tax-exempt municipal bonds.
Charles Keenan, an attorney with the Harford County law firm of Stark and Keenan, said business owners should be aware of changes in the tax code when making their business decisions.
Because the amount they can deduct for capital expenditures has dropped dramatically — from $500,000 to $25,000 — and because the Congress is considering revisiting that change, business owners should consider waiting before making large capital purchases.
Similarly, he recommended that business owners and individuals plan for the higher federal taxes on capital gains, especially for high-income individuals,
“Try to offset [capital gains] with capital losses,” he said. “And if you don’t need to, don’t take [the capital gains].”