03 Nov What Is Your Most Important Tax Goal?
The United States Department of the Treasury expects taxpayers to “pay no more than the correct amount of tax.” It is plausible that the Internal Revenue Service (IRS) receive declarations such as easier said than done, I did not know I could not deduct that expense, my tax preparer put that on my return, etc. True, taxpayers have the right to challenge the IRS’s position and be heard. Add to that important right a well thought out legal tax plan specific to your situation. Consider the below steps as you develop your tax compliance goals:
Self – Assessment tax compliance involves education. Acts of Congress and shifts in governmental administrations provide a lot of tax laws to keep up with. One approach to this kind of momentum is to plan your education agenda considering authoritative tax guidance such as the U. S. Internal Revenue Code (IRC) and U.S. Treasury Regulations and/or work with professionals such as certified public accountants. In addition, be able to identify and avoid tax scams.
Consumption tax is real. Budget for it. Will you deduct state income tax or sales tax on your federal income tax return? Many taxpayers deduct state income tax if they itemize deductions. If you are a consumer who accumulates high dollar sales tax receipts, would itemizing your total sales tax paid save you money? There may be an administrative burden to compile your total sales tax paid. For some taxpayers, this process may be worth it to confirm they qualify for a larger deduction. Further, research sales tax holidays that are planned within your state. Furthermore, the debate on the effects of regressive taxation is beyond the scope of this blog. This sentence is here for you to examine this concept further.
Timeliness is very important. File your returns (e.g., federal, state, business privilege, business personal property, sales & use, consumer use, etc.) on time. Pay your taxes on time. The IRS designates deadlines for compliance with tax laws. At times, submitting a return and/or payment on a deadline date is the reality. However, meeting various tax-related deadlines sooner than later is a best practice. Work towards a less stressful tax year (season).
Investigate your eligible tax benefits. Is it legal for you to protect your income from taxes? Per title 26 of the IRC, deductions, credits and exclusions are legal ways for you to avoid paying taxes. Regularly analyze your life events and federal/state tax laws to identify your eligible tax benefits.
Other taxes to keep in mind. Typically, employers and workers pay payroll taxes. Annual taxes such as property, ad valorem, business personal property and licensing should be on your radar (if applicable). Also, excise taxes on certain goods increase their cost and are typically paid by businesses. In the climate of COVID-19 (also known as the coronavirus), businesses are wise to review the taxability of the new COVID-19 surcharge. There may be taxes not mentioned within this blog that are required by local governments.
Never participate in any form of tax evasion. Maintain evidence that you qualify for the claims (e.g., income, deduction, credit, exclusion, etc.) on your return. At the very least, review the penalty of perjury statement on your return annually.
Putting aside politics, taxation raises revenue for many programs such as defense, health care, debt, education, infrastructure, social security, etc. that the United States of America cannot function without. Indeed, taxation affects the purchasing power of consumers. Incorporate within your budgeting strategy an understanding of taxation and fluctuations within the economy. Perhaps, better (appropriate) planning for your income and expenses considering tax benefits can lessen the impact on your household. Keep in mind that state and local taxation often differs from federal taxation. If you have a tax issue, many taxing authorities offer Taxpayer Advocate Services. Be informed. Be proactive. Best wishes!
Pierce, CPA & Advisors’ website, social media posts including blogs are meant to be used as informational guides and shall not be construed as providing any health, legal, business or accounting advice. A best practice is to consult with professionals such as government officials, healthcare experts, Certified Public Accountants, attorneys, etc. about your situation.