Posted by: Chris Bird, CFP®
Updated: August 3, 2017 | Published: Feb 5, 2015
Federal and state income taxes can be daunting and frustrating for all taxpayers, but even more so for the self-employed professional. Excellent recordkeeping is essential, and you should always select competent tax professionals who understand your business. For example, if you are an investor, your tax professional should be familiar with your types of investments, whether it’s stocks, mutual funds, real estate, and so on. Here are four tips you should consider before you meet with your tax professional in the next few months:
1. Get your records organized.
Contact your tax professional. Request that they send you an organizer to assist you in assimilating the records that both you and your preparer will need to prepare your 2014 return. The organizer should include the items and amounts that were entered on the 2013 return—this will serve as a reminder of which records to gather. Do not drop off your tax information without talking to your preparer first. Also, be sure to have a discussion with them prior to the completion of your return. Ensure you have included everything necessary and obtained answers to all of your questions.
2. Do not fudge on income or deduction items.
Do your taxes correctly and ethically— just like you conduct your business in your real estate practice. Even though the IRS audit rate has significantly decreased, unreported income found in an audit can result in fraud charges and possibly end your career. I have been contacted numerous times over the years by REALTORS® who have had severe problems with the IRS over unreported income or significant overstatement of deductions.
3. Check and double check that you are not missing legitimate deductions.
Most self-employed professionals have a general idea of the deductions that can be claimed, but there are seemingly countless things to consider. Have you considered the business promotion (100%) versus entertainment (50%) issue, or the new home office safe harbor rule? Did you know about the heavy SUV or pickup truck enhanced write-off? What about the possible deduction of concealed carry and firearms training? Have you contemplated the use of an S corporation for your business?
4. Do not wait until the last minute.
The more rushed you are in preparing your information for tax preparation, the more likely it is you will do a lousy job. This often results in missed deductions and, in some cases, estimation of income and expense items, which is never a good thing. Also, don’t miss your chance to address longer-term strategies concerning key retirement components by putting money into tax-deductible and tax-deferred retirement plans, such as SEP-IRAs and 401(k)s for the self-employed.
Chris Bird is a full-time, professional speaker, trainer, and workshop leader. He specializes in wealth building, tax strategies, independent contractor tax issues, retirement, effective money management, and using defined benefit plans. Chris is a Certified Financial Planner™ with a degree in accounting and a minor in business administration. A licensed Minnesota real estate professional, Chris also brings his 16 years of experience as a Senior IRS agent to students as an instructor.