Choosing a Tax Preparer-We don’t all get the same result.

My fees are very reasonable. You will enjoy doing business with me. I chuckle sometimes when someone calls and wants to pay next to nothing for a professionally prepared tax return. Word of warning: Not all tax preparers get the same answer when they prepare your tax return. I am shocked at the fees the franchise type preparer places charge. I guess someone has to pay for all their advertising.

What is the Number One tax strategy that will save you money year after year.

Most taxpayers are “cash basis” taxpayers, meaning you report income in the year you receive it and you report deductions in the year that you pay them. It is that simple. Thus the “Number One” tax strategy that will save you tax dollars year after year is the timing of your income and deductions. In other words, if you don’t receive the income, then you don’t pay taxes on it. Conversely, if you spend money on a tax deductible item you get to deduct it on your tax return and reduce your taxable income.

Sometimes, when I explain this I feel like I am stating the obvious. Heck, I am stating what should be the obvious. But I am convinced most people understand very little about income taxes. Therefore, you must learn to master the timing of your income and deductions. Postponing, deferring, reducing or eliminating taxes is what it is all about, isn’t it?

Generally, most taxpayers who expect to be in the same tax bracket from one year to the next and who want to reduce their current tax bill as much as possible should attempt to defer income to a subsequent year and to accelerate deductions into the current year. (If you suspect you might be in a higher bracket in a subsequent year, you would do just the opposite.) Do not overlook the possibilities!

Question: You are in a 28% tax bracket this year and will be in a 15% tax bracket next year and you need a new computer for your business. When should you buy it?
Answer: The current tax year

I have also seen many cases whereby I try to get my clients to accelerate income and postpone expenses in order to take advantage of the tax brackets.

Big word of warning: Make sure you understand what does “constructive receipt” mean for cash basis taxpayers? You have learned most individuals are on the cash basis of accounting, meaning income is reported for tax purposes when received and expenses are deducted for tax purposes when paid. But, in actuality income must be reported when “constructive” receipt occurs (money is available without restriction).

Example: Via mail you receive a check for the payment of a sales invoice on December 31, 2011, but you don’t deposit it until January 1, 2012 of the following year. Question: When must you report the check as income? Answer: Tax year 2011.

In conclusion, a basic tax strategy for tax planning is to time your income so that it will be taxed at a lower rate and to time your deductible expenses so that may be claimed in years when you are in a higher bracket.