As the Tuesday, April 18th tax-filing deadline looms ahead, you probably have already started to gather all of your necessary tax documents and are likely spending your afternoons organizing them into neat piles of paperwork. This may include business receipts to W-2 forms, investment statements, student loan documents and other important, personalized financial documents necessary for filing a complete and accurate 2016 tax return.
Regardless if you are a self-employed entrepreneur, small business owner or an American taxpayer with status as an employee of another business or corporation, we can all agree that getting it right and filing an audit-proof return is critical. After all, audits could potentially mean significant increases in the amount of tax you will eventually owe, so being prepared on the front-end will reduce any future headaches. Whether you are using a professional service or doing it yourself, there are consequential updates and reminders for the tax code you should know before submitting this year’s tax return.
You may have heard or read about the contentious debate in the nation’s capital about how to reform our country’s tax system. The tax laws we currently have in place are lopsided, incredibly complicated and treat millions of American small businesses lining Main Street unequal with their larger, corporate Wall Street counterparts. According to the latest U.S. Census figures, small businesses account for more than 78 percent of the entire business community, representing over 27 million businesses nationwide. It is important that any tax reform ensures small businesses, the lifeblood of our economy, are treated equally on the playing field with their big business counterparts.
The bottom-line is the tax debate in Washington, D.C. will be long and complicated, but has no impact on your taxes this year. Here are seven things you need to know right now as you prepare to file your 2016 taxes:
1. Health care penalty: There is rancor in Washington about health care reform but the individual mandate is still in effect and could apply to you for not enrolling in qualified health care plan. However, there are possible exemptions to this penalty.
2. Home office deduction: In its fourth year, small business owners who work from their home can now claim a streamlined, standardized home-office deduction rather than completing a complicated and cumbersome 43-line IRS form. By simply checking the box on your federal tax returns, you can easily save money by choosing the standard home-office deduction of up to $1,500 for the business use of your home.
3. Mileage rate: If you use your automobile for business, you also can deduct a standard mileage rate on your return. The reimbursement rate is 54 cents for 2016.
4. Retirement contributions: Limits for retirement contributions have also changed for most Americans. SEPs, IRAs and 401k plans, all allow you to contribute to your own future and take a tax deduction on your 2016 tax return.
5. Health Reimbursement Arrangements (HRAs): With the enactment of the 21st Century Cures Act late last year, small businesses that offer HRAs can now do so without the threat of penalty.
6. Submit Your Return Electronically: By filing your return electronically, you can avoid making errors.
7. File an extension: You have a few extra days this year, as the 2016 tax return filing deadline falls on Tuesday, April 18, but if you still need more time you can always file for a last minute extension.
Now is the time to get started and don’t wait until the last minute. Gather your documents, review the changes to the tax code and how they may impact you personally and do the hard work to prepare an accurate return to guarantee you pay no more than your fair share. Also remember you are not alone. There are resources out there ranging from assistance through from the Small Business Administration to NASE to the IRS.gov website and professional tax services available to help you.
The combination of knowing what’s available and being prepared could result in a beneficial tax return that works for you.