According to a study published by the IRS in 2011, approximately seven million US taxpayers fail to file their required income tax returns each year. This equates to about 5% of the population failing to meet their tax obligations.
The Scammahorn Law Firm specializes in tax law and frequently receives questions from taxpayers filing their returns and about their tax liability.
Obtain Expert Assistance
The tax laws in our country are constantly evolving, which sadly results in several advisers and accountants who are not up to date with the latest rebates, strategies and techniques. Our law firm firmly believes that in order to best serve our clients we must be knowledgeable about the most recent changes to our nation’s tax laws and confident that we know how to apply these laws to your specific situation.
How Individuals Can Reduce Their Tax Liability
The income of someone who is filing as an individual is derived and all deductions are made on a receipt basis. Some of the most effective ways to reduce your tax liability as an individual are to:
Prepay Deductible Expenses
Individual filers can claim a deduction for a prepaid expenditure for up to twelve months. Some of the most common prepayments individuals make include:
- Subscriptions and memberships
- Rental property expenses (repairs and maintenance, strata, insurance, etc.)
- Income protection insurance
- Any interest on investment loans
Review Your Capital Gains
Another way to reduce your tax liability is to review the gains and losses annually of all assets in your investment portfolio. You may be able to find capital losses which can then offset any capital gains which were made earlier in the fiscal year.
Look Into Reducing Your Adjusted Gross Income (AGI)
Your AGI is the total of all income you receive from all sources with any adjustments or deductions subtracted. Some adjustments may include:
- Student loan interest paid throughout the year
- Contributions to a traditional IRA
- Paid alimony
- Tuition costs
- Classroom-related costs
Make Itemized Deductions
Many individuals are able to itemize their tax deductions. Some of the most common deductions include mortgage interest, health care expenses, local and state taxes, property taxes, and gifts to charity.
Use Tax Credits
Tax credits are subtracted from your tax liability. The most common deductions include:
- Retirement savings
- College expenses
- Lifetime Learning Credit
- The Hope Credit
- Earned Income Credit (EIC)
Taxpayers may also be able to avoid or alleviate the amount they owe to the IRS in April by increasing their “withholding”. Through withholding, more money will be taken out of your pay check throughout the year, but the benefit is that you can also receive a larger refund when you file your taxes the following tax season.
Special Considerations For Small And Medium Sized Organizations
There are a handful of strategies which you may be able to use to help reduce your company’s tax liability.
A tax attorney will be able to help you review service contracts and determine whether or not the terms of the contract allow income to be recognized periodically when the services are performed.
Write Off Bad Debts
Another common error which small and medium sized businesses make is that they pay tax on funds they have not yet received. If you have bad debts, make sure that they are written off. Otherwise you will likely end up paying double the tax on that same money.
Keep Track Of Depreciation
The depreciation auditing process involves a number of steps including:
- Writing off obsolete items
- Making use of depreciation pools
- Reviewing immediate write-off limits
Check Your Trading Stock
Perform your annual stocktake so that you know the physical quantity and the value of each item of trading stock your company owns. Any closing stock can often be valued at the end of the year at a reduced cost, at market value, or for replacement value.Read More about Business IRS Tax Liabilities
The Scammahorn Law Firm has the knowledge and expertise necessary to advise taxpayers of every facet of their IRS problems. Our team not only includes taxation attorneys but an experienced in-house CPA accountant who has helped us reduce tax liabilities of over half a million dollars to zero.
If you are concerned about your tax liability or want to learn more about your options with the IRS, the Scammahorn Law Firm is only a phone call away at (903) 595-1000.