As you fine tune your New Year's resolutions for 2015, there's a good chance that something related to personal finance is on the list. Taxes may not be on the agenda until the April crush, but it makes sense to start preparing now for the current tax year and perform maintenance check-ins periodically. The following 10 tips can help individuals and small business owners lower their tax burden, avoid audits, and feel a little better about the whole tax thing.
10 Things to Do Now That Will Lower Your Tax Bill
Although it's nice to get a big refund after sending in your return, it's even better to optimize tax withholdings and receive a little more money in every paycheck. "The IRS has a withholding calculator you can use," says Bill Hendricks, former TurboTax leader and co-founder of Common-form.com. "Once you figure out the right amount to be withheld, request your employer to change the number of withholding allowances."
If you're looking for a new job this year be sure to save all the relevant receipts. You can take deductions for everything from buying resume paper to traveling for job interviews. This may not amount to a lot, and only applies if you itemize deductions, but it takes some of the sting out of the search process.
Is this the year you pursue the learning you've long wanted to acquire? If you (or a spouse or dependent) are enrolled in a post-secondary school, such as a two-year or four-year college or vocational school, you may be eligible for a Lifetime Learning Credit worth up to $2,000 a year. (Note: income restrictions apply.)
In 2015, the penalty for not having health insurance increases to the greater of 2 percent of household income or $325. Although enrolling in a plan may be more expensive, the penalty is worth avoiding if you can. Individuals receive a subsidy towards their premium if their annual income is less than $46,680 and pay lower premiums and out-of-pocket costs if their income is below $29,175.
Michael Raanan, a former IRS agent, reminds taxpayers that a major "life event," such as the birth of a child or a marriage, should prompt submission of a new Form W-4 to employers. Your new circumstances may affect the number of withholdings you're entitled to claim (see "Optimize Withholdings" above).
If you're starting a business, open separate business credit card, checking, and savings accounts. Using a single account for personal and business expenses can get you in trouble during an IRS audit. Moreover, keeping the finances separate will help you stay organized all year while providing accurate real-time information.
Dr. Phillip Kochan, the creator of mileage-tracking software MileageWiz, says small business owners should track how far and when they drive for any work, medical, volunteer, or non-profit activity. Even short trips to the local drugstore to pick up a prescription or to a local charity to drop off a donation add up to a decent tax deduction.
In addition to keeping an accurate mileage log, business owners should keep expense reports for all business-related travel as well as receipts for business-related meals (note with whom you dined and the purpose of the meeting).
If you're not sure if you need to keep a copy of something, or you expect to claim an exemption, deduction, or expense that might not be clear to the IRS, make notes and keep documentation. This is particularly important for events that occur early in the year, which may be long forgotten when it comes time to file your taxes in 2016.