Welcome to the FreshBooks Tax Thursdays series! We know a lot of small businesses struggle with taxes, so we’re hoping to help make it a little easier by featuring advice from leading accounting professionals every second Thursday from January to April.
Last year, individuals who qualified for tax refunds were awarded an average of $2,887, up 8 percent from the previous year (for anyone who’s counting that means 721 more lattes and 300 more hours productivity). While there’s no guarantee that you will receive a refund, there are steps you can take that could not only potentially lower your tax bill and enhance your overall financial situation. What should you prepare for your CPA (Certified Public Accountant)? What can you expect? The Massachusetts Society of CPAs recommends you ask your CPA the following five questions to spot money-saving opportunities:
Question #1. What information do you need from me?
To help give your CPA identify deductions or other tax-advantaged opportunities; expect to spend some time sorting through your receipts and account statements in preparation. This advance organization won’t take a direct bite out of your tax bill but will help you avoid unnecessary trips bringing your CPA new documents as you find them. The earlier you can provide the complete picture of your financial situation, the better. Try to categorize your documents into groups such as business vs. personal expense receipts, or statements of investment vs. earned income. If possible, add up the amounts in each category and print off any expense reports you have to give your CPA the overall summary.
Question #2: Are there any special ways I can save on taxes this year?
By talking to your CPA about major projects, purchases or investments from the past year you’ll find out if any of them trigger tax advantages. For example, did you know that it’s possible to receive a credit of up to 30 percent for qualifying residential energy efficiency enhancements, up to a maximum of $1,500 for improvements placed in service in 2009 and 2010? And because it’s a credit, you can subtract that amount directly from your taxes owed. Your CPA can tell you whether you qualify for this and other money-saving credits or deductions.
Question #3: What should I do now to save on taxes next year?
Did you qualify for all the deductions available to you? Could you be paying less in taxes? Your CPA can analyze your return and tell you what changes might help you to lower your bill in the future. For example, are you contributing the full allowable amount to a retirement savings plan? If not, you may be missing out on some significant tax advantages. You are also giving up the chance to get a head start on what could grow to be a significant nest egg when you’re ready to retire.
Question #4: How can I get a big refund?
Refunds sound like good news, but if you expect to receive a large one this year, that may be a sign that you’re having too much withheld from your paycheck. Refunds are really money the government has been holding on to that you could have been using yourself during the year. Ask your CPA about whether adjustments to your withholding or estimated payments are called for.
Question #5: How else can a CPA help me?
Taxes are just one small piece of the financial puzzle, but the time you spend thinking about your finances at tax time can help identify smart changes you should be making in how you manage your money. Remember that your local CPA has the expertise to help with all your financial questions. Turn to him or her when you want the advice you need to make smart financial decisions.
About the Massachusetts Society of CPAs:
The Massachusetts Society of Certified Public Accountants, Inc. is the state professional association of certified public accountants, representing over 10,000 members in public accounting practice, industry and business, government and education. The Society works to develop and maintain high professional standards and offers a wide array of legislative, technical and referral services to its members. Check out the MSCPA website or the FreshMap to find an accountant near you!
Want more Tax Thursdays? Read the last post in the series, why it’s never too early to prepare for tax season.