There’s no sense in paying more taxes than you need to. And you certainly shouldn’t be paying penalties. A good tax professional can help you avoid both of these situations, but we can also recommend Forbes’ advice to develop these 9 habits of the tax-adverse.
- Be meticulous about your 1099s. Every company that sends you a 1099 sends a corresponding document to the IRS. And the IRS has an automated system that makes sure you’ve reported that income on your tax return. If you don’t want trouble, be sure every 1099 is accounted for.
- Understand write-offs. When some taxpayers hear “write-off” they think they can deduct the entire cost of the item from their taxes. But a write-off just means you don’t have to pay taxes on that amount of money. For example, if you’re in a 40% tax bracket, and you write off a $100 printer, you save $40 in taxes. Write-offs don’t make things free, but they sure do help.
- Don’t take the IRS lightly. The IRS is serious about making people pay the taxes they owe. And they’re even more serious about prosecuting people who evade taxes. You don’t want to try to fool them.
- Stay aware of timing. The IRS does understand that mistakes happen, and if you file on time and respond to notices in a timely fashion, they’re much more reasonable.
- Consider taxes before making decisions or signing agreements. Taxes affect many things, from lease agreements to employee agreements. The tax consequences of a particular action may cause you to rethink moving forward with it, or may help you realize that you can take an action you thought you couldn’t.
- Keep good records. If you are audited, you’ll need documentation for everything. If you don’t have it, the IRS will probably deny your deduction.
- Respond to notices promptly. Procrastinating when the IRS sends a notice often means you’ll end up paying additional penalties. It can also mean more paperwork for you to deal with.
- Choose your battles wisely. If the IRS denies a deduction for $50 and you choose to fight it, the resulting examination could turn up other issues you weren’t aware of.
- Run the numbers. Many taxpayers could take several actions that would affect their taxes one way or another. (Bringing on an employee, buying a house, purchasing new equipment, taking a bonus, etc.) It’s a good idea to run the numbers on multiple scenarios to see which actions or combination of actions make the best overall financial decision.
Getting the best deal on taxes usually comes down to attention to the details. And these habits can help make sure you’re not paying more than you should be.