Bruce, aka “taxguy”, here. I have been in the tax preparation field for a long time and I am asked a lot about my best advice for taxpayers. As we’ll see here this week everyone has their own idea as to what is “best advice”. To me this is a trick question.
Let me explain:
John and Mary, both factory laborers, come in to have their taxes done. A simple return, no children, they rent, nothing out of the ordinary of any kind. If John and Mary ask, “What advice do you have for us to lower our tax debt?” I am not going to come up with much. Looking at withholdings and IRA’s are among the few things I might point out to them. I might suggest buying a home, (depending on their personalities) I might even joke with them about having children for the purpose of the additional exemption, along with EIC, and child care expenses.
Andrew and Brandi come in and ask me the same question. They’ll not get the same answer as John and Mary. You see Andrew and Brandi own a home, they both work (he is a self-employed carpenter and she is an Data processor for an accounting firm), they have two children, one just starting college and the other 10 years behind, both living at home. Brandi has a 401(k) with her employer; Andrew has an IRA (maxed out every year). As you can see the advice I gave to John and Mary would not apply with Andrew and Brandi.
What I might discuss with Andrew and Brandi would be more detailed. Among the things suggested would be an IRA for Brandi, 529 plans for the children, charitable donations of various types. Maybe even a home upgrade for more taxes and interest to deduct. I might even suggest playing the stock market. For these two there are a lot of possibilities. However, Andrew and Brandi’s answer is not going to help John and Mary.
My point is tax advice is not easy, nor can the advice I give one be equally as important to another. Each tax return is personal and equally unique to the individual or couple it belongs to.
I enjoy talking taxes with people on a merely educational or learning basis, but specific advice is generally a bit harder to deal with. It can be misunderstood by one or more people because of their individual situation. And that can be disastrous.
I have learned that a lot of people read our blogs for the advice given. That is great, yet I propose that you, the reader, examine this a bit more closely. Is it advice you’re getting or information?
I suggest that you are reading information and that if it pertains to your specific situation you are getting some advice. My blog is written for informational purposes (or so I like to think), along with my opinions, so that readers can get a feel for me as a person and a preparer. But mostly I am trying to inform the average taxpayer as to what is out there.
With all that said, I do have some advice I’d like to share that is general but won’t pertain to everyone (except the last one):
For those with children, I like suggesting a Section 529 plan. This is a college savings plan for your children. While contributions are not deductible on the federal return (they may be on your state return) the earnings in the account accrues tax free if the money is used for college. If your child doesn’t go to college it can be passed on to another qualifying family member. Anyone (check the rules in your state) can contribute to the plan. This has been called “the best way to save for college”.
IRA’s are big with me. I suggest these on top of 401(k)s and other savings accounts. Growing up I heard that one should save 15% above their 401(k) contributions; IRA’s are good for this. (Depending on your income - meaning if you’re making over $250,000.00, maxing out the limit on an IRA is not going to help you much towards saving 15%.)
Continuing education is another big thing I like to advise clients. To me an investment in ones future is priceless. Depending on the situation there are several places on the return where you can get a tax benefit.
Finally, and this is no doubt in my opinion, my best advice for every taxpayer out there - consult a professional tax preparer. If you’re insistent on doing your own return that is fine. Make an appointment with a professional tax preparer anyway. Visit with them and bring your questions. Take good notes on the answers. Tell them everything honestly. Pick their brains for the knowledge they have. Most of you will find that the hour or two you pay for will be well worth the expense. Not to mention a possible write-off.
And remember what Albert Einstein said - “Not everything that counts can be counted, and not everything that can be counted counts”.