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Seriously, the best time to start on 2016 taxes is now
Now that tax year 2015 is in the rearview mirror, it’s time to turn your attention to the return you’ll be filing next year.
Experts say most consumers’ efforts to minimize their bill are too little, too late.
“Tax planning is more about whittling over time than grand gestures at the last minute,” said certified financial planner Lynn Ballou, a regional director with EP Wealth Advisors. “It’s a very complicated dance.”
By IRS estimates, the average Form 1040 filer spends just two hours per season on tax planning. To put this in perspective, they expect you’ll spend four times that on record keeping (i.e., sorting through that shoebox full of receipts) and twice that to actually prepare and submit your return.
One of the first places to mine for tax moves is your latest return, said Melissa Labant, director of tax advocacy for the American Institute of Certified Public Accountants. Start with the big picture – did you have an outsize refund or bill? Consider adjusting your tax withholding or estimated tax payments.
“The idea is to come close to breaking even,” she said.
A more detailed line-by-line review on your own or with the help of your tax preparer can help highlight other action items, Ballou said. Maybe you didn’t get the full value of certain credits or deductions, for example, or could have pushed yourself into a lower bracket by contributing a little more to your 401(k) plan.
Consumers subject to the alternative minimum tax might see red flags in retrospect, like high state and local taxes or capital gains that exceed your earned income, said Greg Rosica, contributing author to Ernst & Young’s EY Tax Guide 2016. “If you’re subject to it, make sure you understand why you’re subject to it,” he said – which can help you decide the best ways to avoid or minimize AMT impact in future years.
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