Countdown to tax season

Dear Bonnie, I have made a New Year’s resolution to really buckle down on taking care of my finances. I hate the whole idea, especially when it comes to taxes. Taxes are boring but I need to do something to make sure I get all my deductions. Do you have any tips? Also are there any new tax laws I should be aware of? David, Sonoma

Dear David — I understand your attitude about taxes. Believe me, many people share this view. However, when you think about learning enough so that you can minimize your tax liability and consequently have more money in your pocket for things like eating out, vacation, a new car, then the subject might take on a bit more glamour. Listed below are some tips to improve your financial situation in 2016.

Get Organized. Hopefully, you will have kept a file marked “2015 Taxes,” and periodically throughout the year you filed in important paperwork that will be the foundation of your tax return: acknowledgment letters from nonprofits, receipts for tax deductible transactions such as vehicle registration fees, property taxes, unreimbursed employee business expenses to name a few. It’s easy to overlook these valuable deductions unless you file them in the right place when they occur.

Begin a new file marked “2016 Taxes” to store current year financial transactions that will affect your tax return. If you aren’t aware of what you can and cannot deduct, consult with a tax professional to review your tax return and make recommendations of what transactions should be tracked as well as what course you might take to minimize your tax liabilities.

By early February, most providers of third party documents are required to mail out forms you will need to complete your tax return: W2s, 1099s, Form 1098 Mortgage Interest Statement, K-1s, etc. Add these to your 2015 tax file and you will pretty much be ready to rock and roll. If you are a partner in a partnership or a shareholder in a Sub S corporation you will have to wait for your K-1 until the tax return is filed for that entity. Due dates for calendar year entities are March 15 and if the entity gets an extension, your wait may extend to September 15. This will delay your filing, however, you can get an extension through October 17.

If you purchased health insurance through the Exchange, you will be receiving Form 1095. The IRS has announced that many exchanges are experiencing delays and this form may not be available until the first week in March. Check with your tax preparer; he or she may want you to submit the remainder of your tax data as early as possible so they can get a head start before tax season gets crazy. He will then be happy to finish your return when the remaining paperwork trickles in.

Know the timeline: The IRS began accepting electronically filed and paper returns Tuesday January 19, 2016. The fourth installment of estimated tax payments for 2015 was Friday January 15. If you missed the deadline, make your payment now.

Estimated tax payments are due on April 15, June 15, September 15, and January 15. If you have no withholding (as wage earners do) and you will have a federal tax liability of $1,000 or more, then you are subject to making estimated tax payments.

The due date for filing individual returns is moved to April 18 this year. If you cannot meet the deadline, file an extension using IRS Form 4868. Remember: an extension is only an extension of time to file, not an extension of time to pay. If you anticipate owing taxes, you must pay them with the extension form by April 18.

Tax Planning: If your financial situation changes during the year: you become self-employed, there’s a change in your marital status, you buy or sell a home, you gain or lose a dependent, you withdraw funds from a retirement plan, you change jobs, retire, or become unemployed, or any other big change impacting your finances occurs, then you would be well-advised to sit down with your tax pro to discuss these changes, how they impact your tax liabilities, and how to minimize any adverse impact.

New Tax Laws: The tax extenders bill passed legislation in December resulting in $650 billion in tax savings. More than 50 tax extenders were approved, 22 of which were made permanent. Some of the more common extenders that may apply to your situation include:

• The Earned Income Tax Credit,
• the Child Tax Credit (CTC),
• the American Opportunity Tax Credit,
• the deduction for classroom expenses used by teachers
• the deduction for state and local sales taxes,
• Credit for solar electric property and qualified solar water heating property extended to 2021.

Five tax incentives for charitable giving were in the bill, including a provision that allows individuals that are at least 70.5 years old to exclude distributions to charities from their Individual Retirement Accounts. This will be helpful for you if you do not itemize deductions. Contact your tax pro for more details.

A number of business tax breaks are extended without an expiration date, including the research and development tax credit, the increased maximum amount that businesses can immediately expense for property described in section 179 of the tax code, which is increased to $500,000. This deduction is good on new and used equipment, as well as off-the-shelf software. This limit is only good for 2015, and the equipment must be financed/purchased and put into service by the end of the day, 12/31/2015.

Because California economy has improved so radically, our legislators in Sacramento have passed a bill to provide an earned income tax credit for low income individuals with children. It works much like the federal Earned Income Tax Credit but the wage thresholds are much lower.