Tax planning is essential to keep up with tax obligations deadlines. The question is: where does tax planning start? Tax planning starts with the bookkeeping records. Proper bookkeeping is the foundation of accurate and successful tax planning; for this reason we encourage you to do all you can in the earliest opportunity to have available the profit or loss report to asses the amount of tax you owe. Having the information organized when you begin to prepare your tax return makes the experience more pleasant and allows better decision making.
Waiting for the last minute to organize your records and prepare your taxes is not the only mistake you make while planning your taxes. Below we are sharing some other mistakes you can avoid when planning your taxes.
- Planning too late
Starting your planning on December 31 is already late. You may lose opportunities on tax breaks, without enough time to plan. It may limit your ability to claim tax breaks and you may miss saving on your taxes.
- Renting instead owning
When you rent you are missing the benefit of deducting depreciation, interest expense, and taxes that you pay when you own an asset. Also, if you decide to sell your asset, you can benefit from a lower tax.
- Overseas Investments
If you are a U.S. taxpayer and have investments overseas, you have to file a tax return and declare your foreign assets. Failure to do so will incur in penalties and fees starting at $10,000 per infraction. If you have foreign investments, we highly recommend you to contact us to look into your tax requirements.
- Forgetting to allocate personal expenses:
Last-minute tax preparation can only have expensive consequences, rushing leads to mistakes like forgetting to allocate personal expenses incurred for business activities ie. auto, travel, home office, etc. You may miss deductions you are entitled to, especially in the first years of business.
- Failure to include taxes in your budget:
Paying taxes is an obligation and sooner or later you must comply with; we recommend you to include and pay your estimated taxes in your quarterly budget, this way you have an estimate of how much you would pay and have it ready when tax time arrives. Tax planning helps you to comply with the estimated tax payments and brings many other benefits, such as NO TAX SURPRISES!
We recommend year-round tax planning, if you are starting to prepare now, remember it is tax time, the due date to file and pay your 2016 taxes is March 15 for corporations and April 18 for individuals. Give us a call, at Rosillo & Associates, we are happy to assist you preparing your taxes, so you can file and pay on time, or file a 6-month extension.