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Americans Over-tip Uncle Sam by $1 Billion a year
Many of us complain that our taxes are too high. However, the fact is, a huge number of Americans are paying Uncle Sam more than they owe. In addition, it is not just individuals—it’s businesses, too.
According to the Congressional General Accounting Office (GAO), these overpayments tally up to nearly $1 billion every year. Why are so many people overpaying?
The cause is a combination of factors. Math errors, reporting errors, and overlooked deductions add up. In addition, it’s hard for individuals—and companies—to keep up with changing tax laws.
At the simplest level, many individuals choose not to itemize and take the standard deduction instead. It’s understandable, because itemizing requires record keeping and completion of a longer tax form. Yet according to the GAO, itemizing generally saves a taxpayer an average of $438 a year!
But if you do your own taxes, have someone else review them. In addition, do not wait until April 1st to start thinking about your taxes—plan ahead.
If you find taxes too taxing, do yourself a favor and hire a professional. As Albert Einstein once said, “The hardest thing to understand in the world is the Income Tax.”
Money-Saving Tax Tips from ECS – For Small Businesses• There is a relationship between how well a company is run and how well it prepares for its taxes. Staying on top of taxes gives perceptive business owners a financial edge.
• Don’t wait until the end of the year to start organizing your records.
• Consider using financial software to document year-round expenses. If you don’t have time to input numbers, hire someone to do it for you. It is worth it.
• You can’t claim all allowable business travel expenses (travel, entertainment, food, mileage) unless you know what they are. Educate yourself, so you can correctly maintain detailed records.
• If you have a home office, you are entitled to a number of write-offs, including a portion of utilities and home repairs that affect your office. Again, educate yourself.
• If you purchased equipment, investigate the “Section 179 Election.” This allows you to expense (i.e., deduct) equipment instead of treating it as depreciable business property.
• Creating—or contributing to—a retirement plan can reduce your taxable income. Learn the pros and cons of KEOGH plans, Roth IRAs, and SEP plans, and choose the one that makes the most sense for you.
• Consider adding a Health Savings Account to reduce future medical costs. An HSA is a tax-exempt account used to pay for qualified medical expenses, such as dental bills, eye exams, and expenses not covered by your insurance deductible. (Your health plan must have a deductible of $1,100 or more for an HSA to be qualified.)
• Still struggling with your last year’s taxes? That’s all the motivation you should need to start keeping better records right now. Plan ahead now for 2008.