Tax management may not rank high on your list of favorite phrases, but the truth is, staying on top of your taxes now is the only way to prevent IRS headaches later. Here are five essential ways to manage your taxes, and avoid potential trouble:
Organize. This means not only gathering your bills, records, receipts, etc, but also ensuring that you have the tax forms that the IRS demands. These forms are available online from the IRS website and many other sites as well.
Keep Smart Records. You should always keep records that help you identify sources of income, track your expenses, determine the value of your property, etc, but the trick is to know how long to hold onto them, which is usually until the chance of an audit passes, or three years after filing.
However, if the IRS suspects that you underreported your income by 25 percent or more, it has six years to investigate, which is why most accountants advise all tax payers to keep important tax documents for as long as six to ten years.
Hire A Tax Professional. Having a better understanding of tax preparation is crucial to effective tax management, and a tax professional will be able to help you save money, and avoid penalties as well. There are many different types of Tax professionals, but the term generally refers to Enrolled agents and Certified Public Accountants.
An enrolled agent is licensed by the federal government, and is sometimes a former IRS employee. An enrolled agent is best for those individuals with more complicated tax returns, since they are qualified to represent you with the IRS.
A CPA, or Certified Public Accountant, is someone who has passed a state qualifying exam for accounting, but may or may not be a tax expert. CPAs can configure overall tax plans, and guide you through financial situations, but their expertise and qualifications vary, so it is best to research carefully before hiring.
Do not Forget To File Your State Taxes. This may sound obvious, but you would be surprised if you knew how many people overlook this important step during the Federal tax filing rush.
Effective Tax management may seem complicated, but the good news is that it does not have to be. As long as you follow the above tips, and enlist the advice of a tax professional, you will be on the right track toward expedient and trouble free tax filings, and much less likely to have any trouble with the IRS