Friday, January 1, 2016

Be tax-savvy as this year ends and the new one begins

A new year is upon us and with it comes tax season. Now is the time to gather documents in preparation for tax time and to consider a few end-of-year strategies when it comes to taxes. An additional tax-related issue to consider at this time is the Affordable Care Act’s open enrollment period, which ends next month.
It’s time to collect your end-of-year documents to be ready for filing your 2015 tax return. The holidays are a very busy time. Taxes and documents may be the last thing on your mind, but it’s important that you keep track of a few key pieces of information.I offer this list of items to keep handy for tax time:
1.       W-2 Forms – W-2s issued by employers show income, taxes taken out, and other data essential for filing. Save W-2s for every person in the household and for every job held in 2015.
2.       Other Income statements – This form shows other income such as unemployment, social security, school loans, health care reimbursement, interest income, dividends, sale of stock or income from any contract work.
3.       Payment Statements – This form shows payments made such as property taxes or school loans.
4.       Expense Statements – Documents showing all payments and expenses related to self-employment, including cash receipts, credit card receipts and any statements of income or interest from savings accounts and investments.
5.       Bank Account Numbers – These are necessary for a direct deposit of tax refunds. 
The more information you have, the better prepared you will be. When using a tax service, it’s vital to provide as much documentation as possible. The more data I have, the better I can assist in maximizing your refund or significantly lowering any taxes owed.
In addition to getting documents in order, tax payers should consider planning their deductions for the year. Move a charity or tax payment to December that you would normally do in January, or the reverse if you don’t have enough to itemize. Doing so would allow for itemizing every other year and coming out ahead overall.
You should also look at your IRA contributions, you have until April 15 to make a contribution for 2015.I advise against taking a late IRA distribution or 401K distribution if you had a lot of income in 2015 and expect less in 2016.
Another thing to consider is health insurance. Open enrollment for the Affordable Care Act ends January 31, 2016. The Affordable Care Act requires all Americans to have health insurance, whether purchased through or through a commercial insurance company. Everyone filing a tax return must now report their health coverage to the IRS.
Uninsured individuals may face a tax penalty from the IRS. The fee for 2015 reflects an increase from 2014. Penalties for being uninsured are $325 per person or 2% of yearly household income. That fee will increase again next year to $695 per person or 2.5% of household income over the threshold.
Individuals who could not afford health coverage may qualify for an exemption and would not have to pay a fee. It’s important for people to know that exemptions are available and to understand the steps to take to request one.