ADJUSTING YOUR WITHHOLDING COULD BE A SMART MONEY MOVE

Did you receive a big refund check from last year’s taxes? If so, you’re not alone. Many of us deliberately pay extra taxes throughout the year so we can enjoy a nice bonus early the next year. Sometimes it’s insurance against having to come up with extra cash when you file your return. That’s a valid concern. But sometimes it’s just a form of enforced saving. Or perhaps you’ve simply never bothered to adjust your withholding. Those aren’t such good reasons. After all, when you overpay your taxes, you’re making an interest-free loan to the government.

Should you adjust your withholding? Reducing your withholding is as simple as filing a new Form W-4 with your employer. The form comes with a worksheet to figure out how many allowances you should claim. Don’t forget to allow for other taxable income besides wages, such as dividends or investment gains.

If you’re worried about underpaying tax, there are a couple of rules you should know. Generally, you’ll escape a penalty if you pay, through withholding or quarterly estimated payments, at least 100% of last year’s taxes (110% if your adjusted gross income is over $150,000), or if you pay at least 90% of what you owe for this year.

If you reduce withholding, here are some ideas on how to use your extra take-home pay:

• Contribute more to your employer’s 401(k) plan, especially if your company matches contributions. You’ll enjoy a double benefit because the extra contributions will reduce the tax on your wages as well as provide tax-deferred savings.

• Pay down balances you’re carrying on your credit cards. That’s equivalent to earning interest on your extra payments, often at double-digit rates.

• Put the money in a tax-favored Coverdell IRA or Section 529 plan for your child’s education.

Contact our office if you’d like help figuring out your withholding level.

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TURN UP THE HEAT ON YOUR 2014 TAX PLANNING THIS SUMMER

While you’re cooling off by the pool this summer, your opportunity to save on taxes might just be heating up. Here are some summertime tips to keep your 2014 tax plans simmering.

If you are a sole proprietor with children, you might consider putting them on the payroll during the summer months. Wages paid to your children under age 18 are not subject to social security and Medicare taxes. These wages must be reasonable, given the children’s age and the tasks that they perform. Be sure to keep time cards or other records of their work. What’s more, their earnings are not subject to Federal Unemployment Tax until they turn 21.

If employing your children is not an option, you might still be able to score a deduction by sending them to summer camp. Day camp expenses for kids under 13 can provide a tax credit of up to 35%. Just remember, overnight camps do not qualify, and child-care must be necessary to allow the parents to work.

Summer is also a common time for home selling and moving, so be on the lookout for deductions related to these activities. Carefully file away all home sale or purchase papers for next year’s tax filing. If your move is job-related, there is the potential for additional employment related moving deductions if you meet the 50 miles or more test.

Perhaps your sights are set instead on some leisure travel. Tacking on a few fun days before or after a business trip might be a tax (and cost) efficient way to pay for a vacation — if you follow all the rules. Travel that is primarily for charitable work might also qualify you for a tax deduction.

And finally, no matter what your summer plans are, this is always a good time for a general tax check-up to ensure your withholdings and estimated tax payments are on target. For assistance with any of these issues, please contact our office.

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