Let’s face it: Taxes are a pain in the butt.
They’ve been annoying Americans since at least the Boston Tea Party when, on a cold December night in 1773, Samuel Adams and the Sons of Liberty chucked 342 chests of perfectly good tea into the Boston Harbor.
What gets people so riled up about taxes? Well, the obvious answer is many people believe taxes take away too much of their hard-earned income.
Another perception stems from the difficulty and confusion associated with filing taxes. A new survey from TaxSlayer.com found that 53 percent of Americans are not confident in their ability to accurately file their taxes without assistance.
According to the results, 28 percent of Americans believe it would be easier to go a week without their cellphone than to file their taxes. Almost a third of respondent’s report being unfamiliar with terms such as “standard deduction,” “exemption,” “tax credit,” and “withholding.”
“When it comes to taxes, knowledge is power and learning is continuous,” says TaxSlayer’s Director of Regulatory Affairs and Compliance, Daniel Eubanks. ”For many people, filing taxes can be stressful, but all it takes is the right planning, preparation and software to make it simple, easy and manageable. Using these three things makes it easy for anyone to file their taxes.”
While TaxSlayer is a consumer-facing company that provides online tax preparation software for electronic filing of federal and state tax returns, its insights work well for advisors who are talking taxes with clients.
As you delve into those discussions with your clients, TaxSlayer offers these five pieces of advice that can help them organize their thoughts and their papers:
- Don’t wait to file. You can begin the filing process at any time. You don’t have to wait until all your forms are in hand.
- Know your forms. Visit IRS.gov to familiarize yourself with tax forms and terminology.
- Estimate early. Use a refund calculator ahead of filing to determine whether taxes are owed.
- Get personal. Be sure you have all of your own relevant income, health insurance and mortgage information, along with the full name, birthdates and social security numbers of all your dependents.
- Determine deadlines. Based on your tax situation, there could be different deadlines you need to know. And remember that “Tax Day” is not always April 15.
Tax season is a perfect time for you to reconnect with clients, develop tax-savings strategies for them, and incorporate these strategies into a comprehensive financial plan. In those meetings, here are four ways you can help them maximize their tax savings.
Maxing out on a retirement account is one of the smartest moves your clients can make. (Photo: iStock)
Maximize retirement savings
Maxing out on a retirement account is one of the smartest moves your clients can make. They can start with their 401(k) plan. As a checkpoint, have them log on to their account and make sure they have maxed out their annual contributions. The max numbers for this year are $18,000 for those under 50 and $24,000 for those 50 and over.
In addition, they can deduct up to $5,500 in contributions to a traditional IRA ($6,500 if you’re 50 or over). Also, if they are self-employed, they can deduct up to $53,000 (or 25 percent of compensation) in SEP IRA contributions for 2016.
Many people fail to understand or fully maximize the benefits of an HSA. (Photo: iStock)
Too many folks forget about the advantage of an HSA (Health Savings Account). This benefit will allow the account owner to pay current health care expenses and save on those in the future. The HSA also offers numerous tax advantages: Contributions are tax deductible; interest earned on an account is tax free; and, an account owner is able to make tax-free withdrawals on qualified medical expenses. Maximum annual contributions for 2016 are $3,350 for individuals enrolled in self-only coverage and $6,750 for individuals enrolled in family coverage.