Reduce the Stress out of Tax Time.

Preparing tax returns is difficult even for a skilled professional. Our “very smart” Congress people and Senators who created the tax laws can’t even follow the instructions and need to use paid preparers. [There is something wrong with that, but that discussion is for another time.] Here are some tips to reduce the complexity of your return that you can start doing now to make it easier next year. At Wink Tax Services, we have the expertise that is needed to help you file your returns while also helping you to minimize your tax liability with careful planning. • Free or No Cost Brokerage Accounts - These accounts have real world consequences and are not a game. Once can lose money and most important, one must settle up with the IRS and your State in regards to taxes. Yes each transaction needs to be reported on your tax return. There are complicated rules to follow if you day trade or trade often, such as wash sales, realized gains, unrealized gains, short term [ordinary] gains VS. long term [capital] gains. While it may look like a game, it is not. Be aware, 1,000 trades equals a 1,000 tax reporting lines. • Stop investing in publicly traded partnerships. The K-1s these entities provide are ten or more pages with at least a dozen numbers that need to be recorded on the return in and which cause extra forms to be used. Make life easier by skipping these investments. There has to be many other opportunities to make similar investments in conventionally traded stocks. Also, if you own these in retirement funds some of the income could become taxable in those accounts. Be aware these investments are treated as partnership which is a pass thur entity, you may only own in a few days but you may get a large pass thur taxable gain on the K-1 that you receive in the following year. • Ditto with hedge funds. Except here the K-1s are thirty pages with twenty numbers that need to be transcribed on to your return. Also, if you are not sharp, you might miss the note buried on page 14 or there about that the amounts on page one of the K-1 are likely not correct and you need to look elsewhere in the K-1 for the correct entry. Note: If you believe you are wealthy enough to invest in hedge funds and that they are appropriate for you, then don’t skip these because of the increase in your preparation fees. • Foreign stocks provide complicated 1099s with foreign tax withheld. If you are in a mutual fund with foreign stocks the reporting gets very complicated since there are withholdings from multiple countries that need to be reported separately. • Tax-free bond funds provide 1099s but you probably will need to look at the attachment sheet that gives the percentages of taxable income allocated to each state the interest was from. Either buy individual bonds or buy a fund with bonds from a single state. • Many tax-free bonds now have interest subject to the Alternative Minimum Tax (AMT). Watch for this, and if you are subject to the AMT consider staying away from them. • Shares in Individual name vs inside a brokerage account. If you have shares in your own name rather that with a broker, consider transferring them to a brokerage account. This way the dividends will be deposited in that account and you will receive one 1099 reporting all your dividends. Note: When you transfer the shares, provide your cost basis to the broker. If you do not know your cost basis, consider then donating those shares to a Donor Advised Fund to get a charity deduction equal to those shares’ values without having to report the capital gain. • If you have small numbers of shares and get mail from the Company’s transfer agent offering to buy them from you, you would do better by transferring the shares to your brokerage account and then either selling them, holding them in that account, or donating them (see above). Most discount brokers’ commissions are much less than the “nominal” fee the transfer agent will charge you. Actually for the cost the Company incurs by you remaining a stockholder it would be much less costly if they handled the redemptions for no charge to encourage you to get out. • If you still have shares in custodian accounts and your children are over age 18, transfer them to your kids’ brokerage accounts. • Investing in a IRA or Roth IRA early in the year. Investing into an IRA when you are not allowed adds complextity to your return. Remember you have until April 15th of the following year to contribute. Investing early can cause unneeded hassels. • Not telling your Tax Preparer that you invested into an IRA or Roth IRA. While you may get no current tax deduction these contributions need to be reported on your tax return. Also when you take funds out later it can result in higher taxes due to not reporting the original contribution. • Be Organized. When you submit your information, organize it in a logical order, answer all questions on the organizer or drop off form and explain unusual transactions or questionable items. • Respond Timely. Respond when asked for missing documents, questions the preparer may have or clarification of information provided. If you'd like to receive more information about our Troy tax preparation and planning services. Please call us at (248) 816-1220 or 800-276-8319 to set up a free consultation. 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