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More Tax Tips From the Pros

We gathered top tax tips from tax professionalsLast week, I shared my top tax season secrets with you. I also emphasized that there's no one-size-fits-all approach to taxes. To give you a wide range of advice, I asked a number of tax professionals from all over the globe for their best tax tips for tax season. Here's what they had to say:

Taxpayers who have children turning 17 in 2011 need to be aware that for next tax season their 17-year-old child will no longer qualify them for the child tax credit. This is a credit worth up to $1,000. Taxpayers may want to increase their withholdings or change their number of exemptions on their W-4. If not, the taxpayers may have a smaller refund in 2012, or may owe. Consult a tax professional for a more exact estimate based on your personal situation.
--Jessica Smith, Office Manager, Liberty Tax Service

For all your tax forms (W-2, 1099s, etc.), make sure you check off each number as you enter it into your tax software or manual form. When you're done preparing your return, you should see that you've checked off every number from your tax forms. Those numbers are there for a reason. If you miss one of them, there's a good chance you've made an error. Sounds like a simple tip, but you'd be surprised how many people don't do a complete check.
--Cara Greene, CPA

Check your return for filing status, dependents, income. If something looks odd or different from the past, ask why and get a good answer. You are responsible for any problems with the return.
--Trish McIntire, EA

In the past, the General Accounting Office has found that filers who used the standard deduction instead of itemizing paid the Internal Revenue Service almost $1 billion a year more than they should have. Always go through the motions and look at your itemized deductions.
--Bruce McFarlend, Tax Accountant/Owner, L & R Tax Preparation

If you receive a 1099C, whether it's a big amount or small, call a tax professional before just adding it to income.
--Kislak Tax & Notary Services

For all the itemizers who donate time or money, don't forget to calculate your mileage that you drove while you were donating. What about helping out with Meal on Wheels, taking that dinner to the retired church member who is shut in every week? The mileage is $0.14 a mile. It adds up.
--Sue Henderson, Accountant, Bristol Tax and Accounting, Bristol, Tenn.

The taxability of Social Security benefits begins to phase-in after certain starting points. Taxpayers who are in the phase-in area, and are eligible to contribute to an IRA account, might considering doing so, since IRA deductions reverse the process and decrease the amount being taxed.
--Jim Hayden, EA, Grand Rapids, Mich.

Each year, 25% of eligible hard working families fail to claim the EITC. This year, MyFreeTaxes.com has created an application to help determine if they are EITC eligible. The MyTaxBack app is available on the Web as well as mobile devices.

Taxpayers in higher income brackets should be aware of the opportunity for tax free growth in Section 529 college savings plans as well as the ability, as of 2010, to convert qualified plans to Roth IRAs. Investment earnings in both Section 529 plans and Roth IRAs are tax free, as opposed to tax deferred. This feature is most advantageous to younger taxpayers with high incomes.
--Kevin P. Duffy, CPA, President, F.X. Duffy

Small and Medium-Sized Business

Don't ignore the C-Corp if you're looking at a non-PC line of business. It's kind of a forgotten entity and if you have a family that works and one of the family members wants to starts a new business, keeping that income separate with a C-Corp (and taking advantage of the 15% rate as well as keeping out of some of the phaseouts for the child tax credit and your deductions) could save the taxpayer some money.
--Brian Borawski, CPA, Michigan

Wages for business owners: If you're a shareholder-employee of your C or S corporation, you MUST pay yourself a reasonable salary. It cannot be excessive, but neither can it be zero. On the other hand, if you work for your own LLC or partnership, you CANNOT pay yourself a W-2 wage. You can take a draw or a guaranteed payment, but you cannot issue yourself a W-2 or withhold payroll taxes from your "salary." These are common mistakes by the small-business owner and an all too easy target for the tax examiner.
--Robert Morrow, JD, LL.M., Orange, Calif.

Another item that may need a look is around health insurance premiums. In the past, if one spouse had a "real job" with benefits, it likely made sense for the self-employed spouse to be on his or her health plan. Now that health insurance premiums are deductible for SE taxes, it may make sense for the premiums to be paid out of the small business vs. their spouse's plan.
--David Scheumann, CPA

eBay & etsy sellers: Where you store your inventory counts as home office!
--Mariette Knoblauch, Owner, Ballard Beancounters, Seattle

For a small business, simply keeping books and records will save you taxes. I am dealing with a guy who simply does not want to, or is unable to, come up with normal accounting records, and I know he's missing about $15,000 in expenses. That one non-tax related activity turns into big tax savings.
--Steve Trojan, CPA, Owner SMT & Associates Inc.

Invest in a Cost Segregation Study for New Construct. A change in 179 rules makes it possible to write off Sec 1250 QLHI Property in 2011.
--Jennifer Broyles, CPA, Senior Manager, PYA

If you're doing business in the City of Philadelphia, please remember that after you do the federal and state, you still have to do the local taxes (BPT & NPT taxes). That includes self-employed individuals and "independent contractors" that get 1099s.
--Desmond Hudson, Owner, Hudson Tax Services


All U.S. expats should keep a careful record of their travel calendar and workdays. It's essential for sourcing income to different countries. Along the same lines: U.S. expats should make careful track of where their income falls in the tax year of the country they're resident in.
--Jennifer Hersey, U.S./U.K. tax consultant


If a person dies in 2010, no estate tax return (form 706) is necessary if his or her estate is worth less than $5 million. But to transfer the first spouse's $5 million exemption to the surviving spouse, this return must be TIMELY filed.
--Randy Spiro, Attorney, Beverly Hills, Calif.

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Cities with the Lowest Tax Rates

The total amount of tax you pay reaches far beyond what you owe the federal government. Depending on where you live, most likely you're required to pay additional taxes, including property and sales tax. The disparity between the amount of tax you pay in a low-tax city and that in a high-tax city can be dramatic. Living in any of these 10 cities could save you a bundle, although the exact amount may fluctuate based on your income and lifestyle choices.

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Much ado is made in the press about federal tax brackets, but cities can carry a tax bite of their own. Even if you live in a state that has no income tax, your city may levy a variety of taxes that could eat away the entire benefit of living in an income tax-free state, including property taxes, sales taxes and auto taxes. Consider all the costs before you move to one of these cities, and understand that rates may change based on your family's income level.

Great Ways to Get Charitable Tax Deductions

Generally, when you give money to a charity, you can use the amount of that donation as a deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.

A Freelancer's Guide to Taxes

Freelancing certainly has its benefits, but it can result in a few complications come tax time. The Internal Revenue Service considers freelancers to be self-employed, so if you earn income as a freelancer you must file your taxes as a business owner. While you can take additional deductions if you are self-employed, you'll also face additional taxes in the form of the self-employment tax. Here are things to consider as a freelancer when filing your taxes.

Tax Deductions for Voluntary Interest Payments on Student Loans

Most taxpayers who pay interest on student loans can take a tax deduction for the expense ? and you can do this regardless of whether you itemize tax deductions on your return. The rules for claiming the deduction are the same whether the interest payments were required or voluntary.

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