Time flies when it comes to taxes. Your 2013 return will be due before you know it.
And while you can push actual tax filing to the limit — the Internal Revenue Service says nearly 25 percent of taxpayers file near or on the April deadline — you need to act now to make sure your upcoming bill as small as possible.
There are measures, many of them online or via smartphone apps, you can put in place now that will save you time, and more importantly, save you money.
There’s an app for that
Tracking expenses, time and mileage can be a pain, but not having and keeping important documents could lead to substantial penalties if you are audited.
Leah Berger Jensen is owner of The Berger Group, a health consulting practice in New Orleans. Determined not to leave money on the table at tax time, she uses the app Expensify, which allows her to record her billable hours, mileage to and from client offices, and expenses.
Jensen says once she switched from a salaried position to an hourly rate as a new consultant, it became more important to track every hour she works. The app helps her accomplish that goal.
“It takes about one minute to enter in my time and provide details about how many hours (I worked), hourly rate, the client and the project,” she says. “If I mark the items as billable, then it automatically creates an invoice for me that I can send to my client right from my iPhone.”
The app also allows Jensen to capture pictures of receipts, and it provides her with the ability to record mileage on the go. With IRS mileage rates now as high as 56.5 cents per mile, taking advantage of every mile can help save money at tax time.
Don’t play the guessing game
Experts say many taxpayers cut their expected refunds short (or increase their tax liabilities) because of the lack of accounting records and receipts.
As a result, at tax time, taxpayers have to take a wild guess at the amount they actually spent for items that now qualify as deductions. Playing the guessing game can cost you big bucks.
Accountants often advise taxpayers to use a tax checklist or organizer. These now can be found on the Internet. A checklist can serve as a road map of which expenses are deductible throughout the year.
Patrice C. Washington, a Certified Financial Coach based in Atlanta, says having a sound accounting system in place is the key to taking advantage of all available deductions.
“A filing system doesn’t necessarily have to be fancy, but (it should be) simply something that works for you,” says Washington, who adds that using programs such as Mint.com and other accounting software can keep you on the right track.
Washington says small-business owners may also benefit from sites such as Outright.com, which provides online bookkeeping that can help business owners categorize tax-deductible expenses upfront and create customized reports.
“In addition to apps, I also advise clients to review their bank statements monthly or bimonthly, go through every line of the statement and highlight expenses that are tax-deductible,” says Washington.
How much do you owe?
If you are wondering how much you will owe in taxes this year, check out IRS.gov or Bankrate.com’s Tax Center. Both sites provide a withholding calculator to help taxpayers estimate tax liability for the year.
With just a few clicks, you can determine whether you are on a path to expecting a refund or owing money to the government at tax time. If you have determined you are likely to owe money in taxes, you can complete Form W- 4 and provide a copy to your human resources department to make adjustments to your withholdings.
However, if you are self-employed or expect to receive income from earnings that are not subject to withholding, you may need to pay estimated taxes throughout the year. That’s true if you are a sole proprietor and have a tax liability of more than $1,000 for the year, or had a tax liability from the prior year.
The IRS requires taxpayers to use Form 1040-ES, Estimated Tax for Individuals, to determine whether they are required to pay estimated taxes. Taxpayers who do not pay may be subject to certain penalties for underestimating their tax liability.
Kemberley Washington, CPA, is the assistant dean of student programs at Dillard University in New Orleans.