Ten essential tax tips to remember – every year

INDIANAPOLIS — April will be here before you know it, and that means it’s tax time.

The individual income tax filing deadline is April 18 this year in Indiana. If you own a flow-through business, taxes are due in March.

Whether you are preparing to file as an individual, for a business or both – you are (hopefully) gathering or have gathered all the information you need to give to your tax preparer or to file yourself this year. Maybe you’ve already filed early. In any case – here are a few reminders from Kelley alumni to keep tax headaches to a minimum, every year.

1. As an individual: Make sure your withholdings are correct.

“If someone is doing their own taxes, many times people get to the end of the preparation and filing process and realize they owe money when they weren’t expecting it. There may be circumstances where you may have to make estimated payments throughout the year, or there might be circumstances or situations where you need to have extra federal income taxes withheld from your paycheck throughout the year. Making sure your withholdings are correct throughout the year can save the taxpayer from having to pay IRS under-withholding penalties when you go to file your return,” said Roger Ortman, EA, MST. 

Ortman is an adjunct professor of taxation and accounting at the Kelley School of Business Indianapolis and received both his undergrad in accounting and Masters of Science in Taxation from the Kelley School.

“Throughout the year, it’s a good idea to have frequent check-ins with your tax advisor, particularly if you’re going to be changing jobs, to make sure that your withholding is being taken into account properly,” said Leslie Boyd, CPA, MST. Boyd received her MST from the Kelley School of Business Indianapolis and is a principal at CliftonLarsonAllen LLP.

“For example, if you’re starting a new business: talk to your advisor early about that, so you can make the appropriate election and choice of entity decisions in terms of how to structure that," Boyd added.

To make sure that your federal tax withholdings are correct and that you haven’t underpaid your federal income taxes, Ortman recommends that you check here. Keep in mind, if you owe self-employment tax, alternative minimum tax, or certain other taxes; you should use the instructions in IRS Publication 505, Tax Withholding and Estimated Tax.

2. Watch for missed opportunities for deductions.

Christopher Patterson, MST'16, MSA'17, wrote up a blog about the importance of recording your deduction opportunities throughout the year. Read that blog by clicking here.

“Watch for the many incentives available as you gather information this year. One opportunity is the incentives available for people who are paying for education,” said Boyd. “Previously, you didn’t need a 1098T to receive a tuition and fees deduction or some type of tax credit, but there are stricter guidelines now. Make sure you have the proper documentation and think about that as you compile information for your tax return preparer.”

“Your tax practitioner is only as good as the information that you can give to him or her,” said Ortman. “Any life event will affect your taxes someway, somehow. If you feel like there is something that will affect you from a tax perspective, it doesn’t hurt to have a manila folder and save these items so you can have that documentation with you when you meet with your tax advisor.”

3. If you’re doing it yourself, watch for small mistakes – they can add up in a big way.

“Make sure you’re not keying anything in incorrectly into the software program; double check your work,” said Ortman. “Take 15 seconds, or 30 seconds to check your work before you move on to the next screen and the next set of information or questions.”

4. Know when to seek professional advice.

“There comes a point in every taxpayer’s life, where you may have a one-time situation or an ongoing situation where you need professional help, and the box the software came in is not going to help you,” explained Ortman. 

Know when to say when, there’s no shame in that. The money you spend for professional advice: You will get what you pay for.

Roger Ortman, EA, MST

5. File sooner rather than later – Watch for identity theft.

“Another hot topic we’ve heard a lot about as we’re talking to individuals pulling together information is identity theft. The IRS has done a lot to curb identity theft, which has been pretty rampant recently for taxpayers. I would recommend, if you don’t have a lot of information that’s outstanding, the earlier the better for you to get things in. A lot of times when identity theft occurs, it’s when people are trying to get quick refunds on things,” said Boyd.

"All individuals have the right, once a year at no charge, to review their individual credit reports from each of the three credit bureaus (i.e. a report from Experian, a report from TransUnion, and a report from Equifax) for any discrepancies," said Ortman. "Reviewing your credit reports is one way to help you discover identity theft, especially if there have been any new lines of credit (e.g. new credit cards, installment loans, etc.) that have been issued in your name that you have not authorized."

6. Watch for tax reforms in the next year.

“In the next year, we’re going to see a lot happen with tax reform,” said Boyd. “I think it’s going to present both challenges and opportunities for people."

While we don’t know anything definitive yet, in this next year it will be critical if you are a business owner, a high net wealth individual or even somebody who is middle income, to understand what those changes are going to be.

Leslie Boyd, CPA, MST

"Also, you need to understand how they impact you and what the opportunities are. I think we are going to see very exciting times, and I also think it will be more important than ever to collaborate with a CPA to understand how that impacts you and how you can change course to make sure that impact is favorable.”

7. As a business owner – Watch for changes in state and federal law.

“I think a big thing people need to be looking for -- and that is frequently missed -- is the fact that there have been changes in Indiana law related to how we allocate or apportion business income to Indiana,” said Boyd.

“This year, Indiana no longer has a rule related to throwback, which for a lot of companies means if they are selling goods both in Indiana and outside of the state and are located here in Indiana, there’s a possibility that they can now drive down the portion of income that is allocated to Indiana. That’s a big thing to watch out for.”

There also have been changes in due dates for partnerships and S and C corporations. C corporation returns are now due April 15, and partnerships are due in March rather than April 15. S corporations remain due in March.

8. As a business owner - Missed opportunities for deductions and incentives.

“I think another thing we have seen in the business world quite a bit are missed opportunities for deductions and incentives that are available to taxpayers. Another item we see in the manufacturing space, is -- are people properly accounting for uniform capitalization on their inventories? That basically says there are certain costs that are normally period costs on your financial statements, which under tax rules have to get capitalized and pulled into inventory at the end of the year. It creates a book tax difference, and we frequently see people overlook or miss that,” said Boyd.

“In addition, I think there are a lot of other incentives that are out there -- domestic production, activities deduction, research tax credits -- that are opportunities to encourage people to manufacture and produce here and develop their products and processes, but we frequently see a lot of taxpayers miss those opportunities and not take advantage of them.”

9. Consider retirement plan funding.

“There may be an opportunity to lower the tax liability on your return due April 15 by funding a retirement vehicle,” said Boyd. “This is a great benefit, as it can be funded during 2017, but claimed as a deduction on the 2016 filing. Talk to your tax advisor about the type of retirement vehicle that may be right for you and how to set it up.”

10. Be aware of potential changing tax rates next year – and plan ahead.

“We firmly believe that tax rates are going to go down in the next year,” added Boyd. “Being aware of that creates a planning strategy, where businesses should be looking to expense as much as possible this year and also defer income.”

“I think this is definitely something people should vet and watch out for, because that deduction is worth a lot more today when we’ve got higher tax rates than in the future.”