Tax Miniseries 2016 - Part 1

Recently, I was able to interview tax professional, Jerome Tate of Tate, Tate and Tate Tax Services and ask many questions that I and others have been wondering. With the tax season ramping up I thought this would be good for those looking to apply some of this information to this year's taxes or prepare for next year. 

Tax Miniseries 2016 index:

  • Things Single Tax Filers can do to find tax breaks
  • Lowering taxable income
  • Common overlooked tax deductible items
  • Common deductions that may trigger an audit
  • How marriage may impact taxes and returns
  • Using tax software vs a tax preparer
  • The importance of documenting all sources of income

As a single filer I really wanted to know some of these questions that I got the chance to ask, while others were suggested by some of my readers.  My initial question was "What things can a single filer do to find tax breaks?" Jerome's advice was simply to do the following:

  1. Ensure your exemptions are set properly. This should align with your personal tax situation but if you don't claim any exemptions you should receive a refund, with the downside being that your checks will be smaller throughout the year. If you add too many exemptions you will receive a higher paycheck but you will most likely owe money to the IRS. It is important to review your exemptions on your W-4 periodically as your tax situations change and try to understand the impact of adding or removing exemptions. Be sure to note whether you are changing exemptions for federal or for state since they are not the same. Many deductions that are taken, are taken for federal and don't necessarily translate over to state. Therefore, a filer may run into a situation where they have a large return from federal and owe a decent amount to state. To avoid such a situation, it may be best to not alter a state exemption on a W-4 unless you are sure you will get a state deduction. If there is ever any question on whether or not to change an exemption, it would be best to research it or contact a tax professional sooner rather than later to save the headache of owing money at tax time.
     
  2. Itemizing deductions is where single tax filers have the ability to find shelter from taxes. Normally most single filers don't have enough assets to make itemized deductions greater than the standard deductions and is one of the reasons why they may not see a good tax return. However, homeownership gives filers the chance to write off a percentage of property taxes and mortgage interest paid during the calendar year. Property taxes and interest normally will reflect thousands of dollars that have been paid over the calendar year and a percentage of that reduces your taxable income. It behooves any single filers that has a high income to own something to take advantage of those deductions. This includes primary or secondary properties such as rental properties and vacation rentals. Also when purchasing a property there are deductions that can be taken for some of the upfront fees paid as well as points paid to lower the mortgage interest or PMI (private mortgage insurance). 
     
  3. Small businesses are another way for single filers to find tax breaks. The first 4 to 5 years of a business will most likely incur a loss and that loss can be written off in order to reduce a filer's taxable income. In addition to the loss many business expenses and activities done in the name of the business can be written off as well.


More to come in the rest of the series.