Pointers from tax professionals can mean savings both short and long term.

With year-end looming, the annual ritual of gathering necessary tax documents and making last-minute charitable contributions begins. According to area tax professionals, part of that annual preparation should include a meeting with a certified public accountant who is well versed in tax law.

Tax Smarts - Contributors

“The IRS did a study and found that people preparing their taxes themselves overpaid by about $550,” says Lynn Graves, owner of Graves and Associates. “As professionals we spend 365 days of the year staying up with the latest developments in tax law as they take place. We spend a lot of time in continuing education to help people navigate through the process of filing tax returns.

“This year, the Affordable Care Act and its tax ramifications will add to the already challenging process of preparing tax returns,” Graves continues, “making this upcoming tax season complicated for even the most savvy, well-versed professionals.”

“People will be surprised that they won’t be able to do their tax returns that they’ve been doing for a very long time because there are so many changes coming,” says Jeff Krieger, president of Krieger & Krieger. “I’ve been doing taxes for 34 years, and this tax season will be one of the most challenging tax seasons yet.”

Although tax-preparation software such as Turbo Tax have become easily accessible, they are interactive, making the quality of the tax return solely dependent on the quality of information entered into the program.

“It only works when you lead it in the right direction,” says Carol Burkhead of Burkhead and Associates. “Sure, you can answer the questions, but if you don’t answer them correctly, it won’t give you the next question you should be answering. You could be missing out because you aren’t quite sure how to answer certain questions.”

Whether seeking the help of a professional or self-preparing tax returns for 2014, these tips and points of caution can help ease the process of filing taxes at every stage of life.

Young adults and couples, 20s to 30s

• Put money into a Roth IRA, which is hands down the best vehicle for maximizing retirement savings, Burkhead says. A Roth IRA can be opened as soon as there is earned income, and the money is not taxable when withdrawn after the age of 59.5. That means saving for retirement can begin as early as high school.

• Burkhead encourages recent college graduates and newly married young adults to claim single with zero dependents on the W-4 until filing their first return, which avoids the prospect of owing money at tax time. After filing that first return, the W-4 form can be adjusted, if necessary.

• Consider participating in a cafeteria plan for medical and child care expenses if the option is available, says Kathy Graessle, a CPA with Williams-Keepers LLC. Fees for day care, and even for summer camps that act like daycare, are tax deductible, provided the parent is employed or has self-employment income, Burkhead says. However, those who are self-employed with negative income are not permitted to deduct child care expenses.

• Student loan interest is deducted on the student’s tax return if the loan is in the student’s name. That means that even if a parent is paying the loan interest, it is up to the young adult to claim that interest as a deduction.

• Graessle also recommends determining if there are benefits to filing separately versus jointly.



Middle aged, 40s to 50s

• Review the option of paying off a home mortgage versus building up savings, Graessle says. CPAs are well qualified to help clients with estate planning, retirement planning, saving for college educations and timing business asset purchases and dispositions to ensure the maximum tax savings.

• Consider bunching itemized deductions every other year to maximize deductions between standard and itemized deductions, Graessle says.

• Whoever claims a child on a tax return can claim the child’s educational tuition for a deduction. Because tuition statements often go to the student rather than the parent, parents who aren’t aware of the savings opportunity often lose thousands of dollars in tax savings, Burkhead says.

• Be sure to deduct the cost of long-term care insurance, Burkhead says.


Retirement age

• Retirement age and the years heading into retirement are imperative times to rely on the expertise of a tax professional, Burkhead says, because things like paying off a mortgage, paying off outstanding debt and saving enough in a retirement account are key to sailing into retirement in a comfortable financial position.

• Now more than ever, because of the costs of rising health care, it is important to start saving early. According to Krieger, those in the 15 percent federal tax bracket and a 6 percent state tax bracket are guaranteed to save 21 percent in tax dollars. That 21 percent return is an excellent incentive to save in vehicles such as IRAs, Krieger says. As an individual’s wealth grows, the savings could be as much as 40 to 45 percent.

• Consulting a professional in the years leading up to retirement can help ensure that retirement doesn’t bring with it an unwelcome guest — a higher tax bracket. Burkhead says she has seen clients who have sacrificed so much to save for retirement that they end up paying more taxes upon retirement. Planning with a knowledgeable professional can help avoid such a pitfall.

“Most people at this age are seeking professional advice,” Burkhead says. “They are smart enough to know they shouldn’t do it themselves.”


Small Business

• The IRS has changed the regulations for depreciation, which in turn requires a change in accounting practices, says Peggy Cook, senior tax associate with Graves and Associates. This change will affect most small businesses, as they likely have depreciable assets.

• The Affordable Care Act provides for a tax credit for employers who provide employees with health benefits. Small-business owners who don’t know how to calculate that credit could be missing out on a valuable savings opportunity, Cook says.

• Many employers pay or reimburse employees who obtain their own health benefits. Cook says that reimbursement is now subject to payroll and income taxes.

• Small businesses failing to set up their payroll correctly or that don’t pay payroll taxes in a timely manner can be subject to significant penalties, Graessle says.

• Expenses such as meals and entertainment are only 50 percent deductible, Graves says. Companies that are audited and have underestimated taxes or understated income can be penalized.

•  Don’t overlook deductions such as business mileage expenses and home office deductions, Graessle says.

Although there is always a long line at the post office in the late hours of April 15, Graessle says the most impact comes from beginning a dialogue with a CPA well ahead of the tax deadline.

“My recommendation would be to meet with a CPA well in advance of the end of the tax year to allow time for a review of your information and the implementation of planning opportunities that may save you tax dollars,” says Graessle.

Although there is a cost to working with a professional, Graves is certain the potential tax savings — and the peace of mind in knowing that a return was prepared correctly — is worth the investment.

“A few hundred dollars to pay a professional to do your return more than pays for itself,” she says.