1. Start Preparing Early
Any time there are big changes in the tax code, it takes some time to understand what the ramifications are and how they boil down in individual cases. The last thing a tax filer wants is to be realizing the impact of these changes and their ramifications at the last second. By starting early, ideally right away, one has time to adjust, make changes, raise additional funds if taxes increase, or plan additional changes such as more retirement savings if taxes decrease. But none of this is likely to occur if you wait until April 10th to prepare your taxes. Start now.
2. Report All Earnings
As both the IRS is forced to be more efficient with less and the federal government shifts to more reliance on databases and data mining, more income is going to be reported through various means. Five years ago, the IRS aggressively enhanced its ability to match income reporting to find possibilities of underreported income, particularly with those who receive 1099 and 1098 interest reporting. So, don't be a statistic; report everything you know you earned, even if it was never paid as a paycheck such as passive income.
3. Don't Claim It If You Can't Prove It
A key factor that triggers audit penalties is when a tax filer claims a deduction and then can't prove it with paperwork. There’s a lot of this type of play in the investor world, whether it’s real estate preparation costs for house-flipping or broker commissions for stock trades. Either way, you need receipts and objective documentation to prove your costs. Your opinion, no matter how experienced, doesn’t count.
4. Offshore Reporting is Required
With a global market, the opportunity for offshore investing is far greater now, and that includes income invested in foreign accounts. If you have investments such as these, remember to report any interest or profit gains. The IRS is proactively checking with foreign banks and can easily obtain accountholder records. Those who omit or fail to report such investments will face a very severe and costly penalty.
5. Go Long
It’s easy to get caught up in the chase for short turnarounds on a stock, but your capital gains taxes will be significantly lower if you hold onto your investments longer than the short-term period. So, if you’re already in a good position with a stock and want to save on taxes, don’t give up your profits on a short sale. Hold on a bit longer, at least one year, and then take your selling profit.
6. Max Out Your Roth
One of the neat benefits for investors is the fact that they can keep contributing to a Roth IRA right up to the date that their income tax filings are due. This gives an investor time to do any last-minute catchup contributions to reach the annual max allowed. One of the ways to make this work is if you anticipate a tax refund. If you know money is coming back after cranking out a draft version of your taxes for 2018, front some of that expected refund early into your Roth IRA to reach your max contribution. You’ll get the funds back a few weeks later with your tax refund so it’s not really out of pocket, and in the meantime you fund your retirement opportunity for 2018.
The 2018 tax filing will be a big change for some, but that doesn't mean you can't plan for it. The earlier you start the more room you have to maneuver.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.