As we near the end of the year, that also means it’s almost tax time! Soon the tax forms will be rolling in. Here are a few year-end tips that may come in handy as the fiscal year comes to a close and new year’s resolutions are made.
Remember to keep track of both your business miles and total miles. There are several different options for deducting vehicle expenses (including using the standard mileage rate of 58 cents per mile, or actual expenses). However, all methods require some tracking of mileage. There are several mileage tracking apps available. I use Mileage IQ, which is included with some versions of Microsoft Office 365 and is very simple to use. It will automatically pick up the mileage driven, and prompt the user to classify the drive as personal or business.
Receipts should be kept for deductible items, including business expenses. The credit card statement itself will not suffice for proof in the event of an audit. Actual receipts are needed as documentation. Many people use the “shoe box method” of throwing receipts in one box. As you start a new year, it may be a good time to become more organized with your receipt tracking – whether that’s using file folders or implementing a paperless storage system.
Estimate tax payments & consider donations
If you have any purchase or investment decisions to make, there are still a few days left in the year. It can be very helpful to have a projection done of your estimated balance due. This can be used for items such as charitable donation planning, donating required minimum distributions from IRAs to charities, as well as determining what the final estimated tax payment due on Jan. 15, 2020 should be.
- Charitable donation planning may involve “bunching” your charitable donations among the years in order to maximize the deductions in one year (and thereby helping to lower taxable income). This can be especially helpful for individuals who are on the upper limit of the 20 percent business income deduction’s income limitations.
- Donating required minimum distributions from IRAs to charities is helpful for those who are of the age that they must take required minimum distributions (RMDs) out of their IRAs but are looking to minimize their taxable income. By sending the RMD straight to a charitable organization, the individual’s taxable income is reduced. This can also enable a benefit for charitable donations for individuals who may not otherwise itemize their deductions.
Determine next year’s budget
Year-end is always a great time to develop budgets for the following year. Spending time to develop an accurate, realistic budget that can be closely followed can not only help guide your spending but also help plan for saving. Budgets can be done for any organization, and also for individual households. Generally, starting with actual numbers for the current year, and projecting any anticipated changes for the next year, is a great method to follow.
Collect tax forms
Finally, be on the lookout for tax forms that will be headed your way. Generally, these forms should be received by individuals by Jan. 31. However, some investment companies get extensions to issue the investment forms.
- Form W-2 reports the wages received and taxes withheld for employees.
- Form 1099s are used to report investment income (1099-INT is for interest, 1099-DIV is for dividends), and also miscellaneous income (1099-MISC).
- Form 1098s are used to report some deduction items, such as 1098-T for college tuition, and 1098 for mortgage interest.
- Form K-1s are used to report income from a business (partnership or S Corporation) or a Trust.
- When in doubt, forward any tax forms you receive to your income tax preparer!