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Warmest Regards,

Karla K. Dennis
CEO & Enrolled Agent

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Tax Tips for 2011

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  1. If you are a business owner, consider adding your minor kids to payroll in 2011.  You are able to pay your kids up to $5,700 per year and not have to pay payroll taxes depending on the entity you use to operate your business.  This is a great way to shelter income and get your kids involved in business.

  2. Business owners should review their entity structure early in the year.  Reviewing the entity you currently use to operate your business to see if it is  still tax smart to operate from that structure can do wonders to lower your taxes.  Many business owners start a business and never go back to review the structure to see if it still makes tax since. This typically results in the over payment of tax

  3. Turn a hobby into a business.  Taxpayers often have hobbies that have the potential to generate income for them.  If you turn a hobby into a business, you are able to write off your business expenses as long as you are in the pursuit of income.  This is an excellent way to save on your taxes. The earlier in the year you start this process, the better the tax benefit will be to you.

  4. If you are a real estate owner, consider whether or not being a real estate professional is the right move for you.  Currently if you hold real estate you are only entitled to deduct $25,000 in real estate losses depending on your income.  A real estate professional can deduct a 100% of their real estate losses against all other income on the return.

  5. Lower your taxes by eliminating the taxability of interest income on your tax return.  Taxpayers who are able to save money typically do so in a basic savings account or some other interest bearing account which generates taxable income.  If a taxpayer used their life insurance policy to save money , they would have the benefit  of having their money grow tax free.  There are life insurance polices that have a savings mechanism attached to them that allows the taxpayer to have access to the money with out having to report the income on their tax return.

  6. If you are an employee review your withholding allowances by completing a new W-4 form for your employer.  There have been several law changes over the past year, reviewing your current year income tax withholds would be a very prudent idea.  Many individual taxpayers find themselves highly over withheld and others find themselves under withheld.  Neither is a good position.  If you are over with held, you have lost the ability to save and use your own money for the greater part of the year.  If you are under withheld, you will whined paying more in the form of penalties and interest.

  7. Start Contributing to your employer’s 401K plan or other available retirement plans.  Many employers will match the contributions made by employees up to a certain limit.  This in a since is free money that many employees do not use to their advantage.  At the very least, establishing contributions to a retirement plan early in the year gives you the opportunity to start a nice savings and by December 31, you will have a nice tax savings vehicle.

  8. Self-employed taxpayers should review their tax payments for both federal and state.  Knowing whether or not you are going to have a huge tax bill come April is pretty important.  If you can get a handle on  your estimated tax payments early in the year, you can plan to make the payments by putting the amounts in your budget and now having to scramble at the last minute.

  9. Set up your organizing system for 2011 now.  Taxpayers lose out on tax deductions because their records are not organized.  When a taxpayer has their records organized either by using an excellent filing system or by using a simple money management program such as quicken or e-money, they system to get larger writes offs on their taxes.  It is hard for individuals to remember what they did in January of the prior year when they are getting their taxes done in April.

  10. Speak to your tax professional before making any major purchases for business or for your home.  With tax laws changing rapidly, we are bound to have some changes in 2011.  Before you make any major purchases, check in with your tax professional to see if there is anyway you maybe eligible for a tax credit or a tax deduction.  Knowing a head of time what to be aware of is  smart money management so taxpayers can take full advantage of any tax benefits.