Monday, December 19, 2016

Last Minute Tax Moves For Solopreneurs

FROM FORBES.COM

Taxes can certainly be tedious – and a distraction – for solopreneurs. But with the year almost over, it makes sense to consider some strategies.

So what to do? Well, here are three ideas to consider:

#1 – “Bunching”

When doing your taxes, you have the choice of either taking the standard deduction (which is a fixed amount) or to itemize your deductions. Of course, you take the one that gets you the most tax savings.


Now, if you do not have enough to itemize, you might think about “bunching,” which requires some year-end planning.
“Generally, people who choose to itemize their deductions claim eligible expenses, like charitable contributions, mortgage interest, real estate taxes, and even medical expenses, to reduce their taxable income,” said Kurt Avarell, who is the CEO and founder of Canopy, which sells software for the tax industry. “So the goal of bunching is to pile two year’s worth of eligible expenses into one year. By doing this, you get a larger deduction this year and you can still claim the standard deduction next year.”


Take the example of charitable giving. If you bunch your 2017 contributions into 2016, you may be able to get the itemized deduction.

“You can also prepay your property taxes, medical expenses, and certain miscellaneous expenses,” said Kurt. "Although, consult a professional if you have specific questions about which expenses are eligible for bunching. For example, mortgage interest is one expense that cannot be bunched, so use this strategy only where it makes sense.”

#2 – Use TaxCaster

This is a pretty cool app from TurboTax. You input your tax information -- and then you can test different scenarios. For example, what if you contribute to an IRA? What if you sell some of your stocks?

Oh, and it can also help with the bunching strategy!

“After you finish the questionnaire, the calculator will give you an estimated refund or amount due,” said Kurt. “TaxCaster is a great tool for tax planning.”

#3 – Use An App To Get Organized

None of these strategies really mean much unless you have tracked your expenses for the year. The good news is that there are several apps that can help out.

And one to consider is Xero TaxTouch, which is fairly easy to use.  The app will first import your financial information. Then after this, you will do Tinder-like swipes to indicate whether an expense is personal or for business purposes.

“Once you are finished, you’ll be able to file your Schedule C or put together your quarterly estimated tax payments,” said Ryan Himmel, who heads up Xero’s Financial Partnerships in North America.

Or another option is Taxfyle. Like Xero, the app also imports your financial information but you also get access to a network of qualified tax experts.