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CPAs Reveal 9 Tips for Filing Your Taxes

Is it already time to start thinking about taxes? Every year, filing taxes is an unfortunate but necessary item on the to-do list. But getting your taxes done doesn’t have to be a horribly arduous, taxing (pun intended) experience. Here are nine tips for getting the job done, courtesy of some friendly Certified Public Accountants (CPAs) and tax experts.

1. COME PREPARED WITH ALL YOUR DOCUMENTS.

Before you meet with your CPA, make sure you have all your documents. Take the time to locate and organize any W-2s, 1099s, and other tax forms you’ve accumulated during the past year. “I love seeing clients who bring in their tax documents well organized in a ready to review format. It makes my job much easier and saves time and money,” says Michael Yoon, a Senior Accounting & Tax Associate in Long Beach, California.

If you choose to forgo a CPA and use a discount preparer like H&R Block or tax software like TurboTax, organize all your documents in one place before you begin. Yoon adds that, because the burden of proof falls on the taxpayer, you should “maintain good documentation that can prove almost every number that goes on your return, for at least four years.” That way, if you’re ever audited (knock on wood), you’ll save yourself a lot of time and hassle.

2. DON’T LIE TO YOUR CPA.

Your CPA is there to help you, so don’t lie to him or her. Be upfront about your finances. Hiding an outstanding balance you have with the IRS or underreporting your income is a bad idea (and illegal). 

Melanie Lauridsen, the Technical Manager for Taxation at the American Institute of CPAs, writes that some people lie to their CPAs because they’re embarrassed about money they earned by gambling or medical expenses they’ve incurred. Although any discussion you have with your CPA, like your therapist or doctor, is confidential, it’s not privileged information. So, unlike attorney-client privilege, your CPA, if subpoenaed, is legally required to reveal any information you’ve shared. 

3. MAJOR LIFE CHANGES CAN HAVE BIG TAX CONSEQUENCES.

Where you are in your life has bearing on your taxes. The year you take on a second job, get married, have a child, or retire, your tax situation could become more complicated than it previously had been. Andrew, a CPA in Los Angeles, says that discount preparers “are fine, but if your financial situation is somewhat complex, you should see a CPA or tax professional who can give you personalized attention.” 

If you decide to seek professional help, you should set up your meeting with your CPA between January and early March—but the earlier the better.

4. IF THE IRS INITIATES CONTACT WITH YOU BY PHONE OR EMAIL, BEWARE OF A SCAM.

The IRS is a big fan of snail mail, so it will always send you a letter before contacting you any other way. If you receive a call or email from anyone claiming to be with the IRS, be wary of a possible scam. Andrew recalls receiving a phone call last year from a local area code, with a man telling him that the IRS was threatening him with a major lawsuit. “I knew it was clearly a scam since I’m a CPA, but the call was convincing enough that I can understand how an older person might be fooled,” Andrew says.

5. EVEN THE IRS MAKES MISTAKES…

The technology the IRS uses is not exactly cutting edge. So, if you get a letter from the IRS stating that you owe a wildly inaccurate amount of money—like, $20,000—don’t panic. You didn’t necessarily do anything wrong. Just mail the IRS a letter explaining that you paid your taxes in full (with supporting documentation as proof), and you should be good to go. 

A. Kitchin, a Tax Senior Associate and CPA, advises that people “always print tax payment confirmations as proof of payment.” Having a paper trail of these confirmations will save you a lot of stress should the IRS claim not to have received your payment. Even the IRS makes mistakes and sends automatic letters about issues that have already been dealt with.

6. …BUT THE IRS WILL CATCH UP WITH YOU EVENTUALLY.

The IRS’s goal is not to throw you in prison for tax fraud—it’s to collect the most tax revenue. If you’re really behind in your tax payments, contact the IRS to ask if you can do an installment agreement (ask about Form 9465). If you’re reasonable with the IRS, the IRS will be reasonable with you. 

7. IF YOU’RE SELF-EMPLOYED, BE METICULOUS ABOUT TRACKING YOUR BUSINESS-RELATED EXPENSES.

If you’re self-employed, you may be able to deduct home office expenses (a portion of your rent or utilities), car expenses (if you use a car for work), or health insurance, reducing the total amount of taxes you owe. Emily Kingan, an Enrolled Agent with the IRS and owner of Math LLC, stresses the importance of keeping good track of receipts. “Business-related expenses reduce your income dollar for dollar in most cases. Whether it is a business bank account, credit card, or simply a shoe box, keep all business-related spending and receipts in one place.” 

Kingan adds that it can be incredibly time consuming to track all your expenses if you use multiple accounts or mix business purchases with personal spending. “I think the best way to keep track is by having one bank account or credit card account that you use for all business spending. If you use cash for business spending, keep a logbook or a special place for your receipts.” 

8. YOU MIGHT NOT BE ABLE TO BENEFIT FROM THOSE TAX-DEDUCTIBLE DONATIONS TO CHARITY.

Just because a non-profit organization tells you that your donation is tax-deductible, it doesn't mean you'll necessarily be able to deduct it on your taxes. “While donations are technically tax-deductible, many young adults are not able to get any benefit from these donations in reality,” says Yoon.

When you file your taxes, you can either take the standard deduction, which is a lump sum reduction in your adjusted gross income, or you can itemize your deductions. Itemized deductions are things like mortgage interest, property tax payments, and charitable donations. Because most young people don’t own homes or have a high enough income, they might not see tax benefits from the charitable donations they give.

9. TECHNICALLY, APRIL 15 IS NOT THE FINAL DEADLINE TO FILE YOUR TAXES.

If you don’t think you can get your taxes done in time, the IRS will give you an automatic six month extension—until October 15—to actually file your taxes. The catch is that you must pay an estimate of what you think you owe by April 15. “Taxpayers have the option to extend their filing deadline to October 15 (or the following Monday if the fifteenth falls on a weekend). This is an extension to file, not an extension to pay,” cautions Kitchin. 

For most people, it’s simpler to pay and file their taxes at the same time, but people with complicated tax situations (like beneficiaries of some trusts who may not receive the proper tax forms until after April 15) have the option to file later.

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California Startup Pays Users to Consume Less Energy
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You may know that turning off the lights when leaving a room or lowering the thermostat before bed are smart habits, but with no way to see their immediate impact, they can be hard to keep. OhmConnect is built around the premise that more people would follow through with these actions if they had a little motivation. As Fast Company reports, the San Francisco-based startup rewards California residents for their green choices with real cash.

The mission of the company is to prevent energy grids from using costly and dirty emergency power plants by encouraging customers to conserve power when demand outweighs supply. During “OhmHours,” users receive a text suggesting energy-saving practices. They can choose to opt out or agree to make an effort to lower their consumption. If their usage in the next hour is lower than the average for their home on that type of day (weekdays are compared to the weekday average; weekends to the weekend average) they receive points which can be redeemed for money. The more people participate on a regular basis, the more points they’re able to earn.

Participants in homes equipped with smart devices like a Nest thermostat or Belkin smart switches can program them to automatically consume less during those times. Nearly a fifth of the user base chooses some type of automatic response.

Someone living in a small apartment participating once a week has the potential to make $40 to $50 a year, while a family living in a larger home can earn up to $200. The California energy grid has also reaped the benefits: Since launching in 2014, OhmConnect has saved the state a total of 100 megawatts (the equivalent of not running two emergency power plants at high-demand times). California residents who get their energy through Pacific Gas and Electric, Southern California Edison, or San Diego Gas & Electric can sign up to participate online. If you don’t live in the state but are interested in the service, you may get a chance to try it out soon: OhmConnect plans to expand to Texas, Toronto, and potentially the East Coast.

[h/t Fast Company]

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11 Secrets of Financial Planners
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You share your darkest money secrets with your financial planner. You even tell him about the time you spent your last pennies at Starbucks, because without caffeine, how could you work? This is the person who is supposed to sort out your life so that you can buy everything your heart desires, after all—or so we want to believe. We found out whether financial planners judge your shoe-buying habit, whether they get mad if they have to repeat themselves time and time again (we hear what we want to hear), and why they don’t always follow their own advice.

1. SOMETIMES, THEY GET A LITTLE ANNOYED WITH YOU.

“I grimace when friends or clients get involved with multi-level marketing endeavors, thinking it’s a quick way to make money,” says Quentara Costa, a certified financial planner in Massachusetts. These MLMs, including LuLaRoe, Matilda Jane, and others, rarely last more than a year, but according to Costa, the outlay of funds and time you pour into developing and understanding the product could have been better spent pursuing other means of career development. “While well-intentioned, it’s my least favorite method of supplementing income because it can take years to develop business and trust within the community, as with any business venture,” he explains.

2. THEY DON’T ALWAYS APPROVE OF YOUR CAR-BUYING WAYS.

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Meghan Chomut, a certified financial planner in Thunder Bay, Ontario, says she can’t stand it when her clients overspend on vehicles. She even has a golden rule about it: The total value of all your vehicles and motorized toys shouldn’t add up to more than half of your annual income.

3. BUT THEY UNDERSTAND THAT YOU’RE GOING TO FORGET ABOUT SAVING MONEY DURING YOUR VACATIONS.

This is the time when clients tend to go off the rails, says Bill Ryon, co-founder and managing partner of the Dover, Delaware-based Compass Investment Advisors. Whenever Ryon sees clients taking distributions that are larger than what’s called for within their financial savings plan, he knows that they’re going on an international trip. “It can be a little bit of a sensitive conversation, since it is their money and I want them to enjoy themselves," he says, "however not at the expense of derailing their plan or jeopardizing their lifestyle in the future."

4. THEY BLAME YOLO.

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“If you can’t afford it, you shouldn’t do it,” Chomut says. “But then #YOLO, and all of a sudden, you’ve booked a trip to Florida. Or #FOMO you are going out to eat at a fancy restaurant with friends and putting it on a credit card," she says. "The struggle is real.”

5. THEY TOTALLY EXPECT TO REPEAT THEIR ADVICE OVER AND OVER AGAIN.

Warren Ward, senior planner with WWA Planning and Investments in Indiana, says that many years ago, his doctor told him that about half the medical issues he dealt with in his practice were optional: people overate, refused to exercise, or smoked. But they still wanted their doctor to keep them healthy. “He responded by repeating his good advice, and making medical interventions when appropriate,” Ward says. “Just like that physician, we care about our clients, and will patiently repeat our advice at every visit, knowing from experience that people can change over time and become more financially healthy.”

6. EVERY FINANCIAL PLANNER HAS THEIR OWN FINANCIAL TRICKS TO PASS ON.

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Ward is a huge fan of the “cash envelope system,” he says. Basically, you map out your spending for the week, and put that amount of cash into an envelope. “Mapping out your spending for the week allows you to know where your money goes instead of wondering where it went,” he says.

7. SOME WANT YOU TO FOCUS ON THE BIGGER PICTURE ...

“The secret is that all retirement planning is income planning and everything else is detail,” Ryon says. “I’ll have to repeat that several times, but that’s it. It helps them to focus on what’s really important and what they are planning for.” Essentially, he says, you’re saving and investing to sustain your lifestyle for at least 30 years after you retire. So if you focus on the fact that all of your retirement planning is income planning, then you’ll be able to think of your money as a machine that’ll pay the bills once you stop working.

8. ... OTHERS WANT YOU TO THINK ABOUT EVERY DOLLAR YOU SPEND.

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The key is to make a budget every single month, Chomut says. “Every dollar overspent is a dollar you have to either work harder for tomorrow, or a sacrifice you’ll have to make later.”

9. THEY DON’T ALWAYS FOLLOW THEIR OWN ADVICE ...

Ward says that the most difficult part of financial planning is convincing his clients to plan for death. That means setting aside money for the kids’ education and naming a close friend or relative as a potential guardian for those children ... just in case. “Just like my clients, I’m slow to face updating my estate planning documents,” Ward says. We don’t blame him!

10. ... BUT THEY STILL WISH YOU WOULD TRUST THEM ...

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“In our modern age of 24/7 news coverage, I think people tend to put too much emphasis on interpreting the latest headline, and then trying to act tactically in response,” Ward says. “Whether this involves making an investment decision based on world affairs, or following the weather minute-by-minute prior to a vacation, we prefer that they think strategically, formulate a plan and stick to it—of course allowing for periodic review and adjustment.”

11. ... BECAUSE AT THE END OF THE DAY, THEY’RE THE EXPERTS.

“I struggle watching one of a couple—usually the husband—claiming expertise that’s actually incomplete,” Ward says. After all, he doesn’t brag about medicine when he goes to the doctor, nor does he claim knowledge of the law if he visits a lawyer. “I try not to be judgmental, but this is an area where I struggle,” he says.

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