Last Minute Tax Tips For Mariners
We’re all guilty. We don’t enjoy pondering many of the negative aspects of our lives. Having taxes prepared has been compared to going to the dentist more times than I’d care to remember.
Ronald Regan said, “The Taxpayer - that’s someone who works for the federal government but doesn’t have to take the civil service examination”. Most clients I speak to understand the nature of the tax system and are comfortable with paying their fair share. The issues arise over their interpretation of what a fair share is versus the governments’. Here’s my question - when has ignoring an issue made it better?
December for individual tax planning is similar to packing a sea bag for what could be a six month hitch. When I would sail, there were certain things I made sure to take along. They’re all common sense items - foot powder, toothpaste, email contacts, account info, specific clothing, etc… I know it’s a lot easier to get supplies in my hometown vs. Djibouti, Africa. And once she’s underway, you can’t turn around and go to Wal-Mart.
December 31 is the day before your voyage begins for tax purposes. Once we’ve gone into the new year it’s pretty much too late. Luckily, there’s a month left. Let’s look at some common sense tax planning items that could save you thousands before departure.
1. Have you maxed out retirement?
This is such an easy addition to any tax plan. The higher your income, the more beneficial retirement contributions can be. You’re excluding taxable income at your marginal tax rate (MTR). This is the rate that your next dollar will be taxed at. $10,000 contributed to a 401(k) plan by someone in a 25% bracket saves $2,500 in taxes (plus the state, if applicable). The savings can exceed your MTR in some cases.
If you’re getting hit with alternative minimum tax (which can effectively eliminate your employee business deductions), these contributions will reduce alternative minimum taxable income (AMTI). If you’ve lost child tax credits, these contributions may help put them back on your return. It’s all about adjusted gross income (AGI). It’s one of the most important lines on your 1040. If it’s too high, many benefits you may have qualified for will be lost. 401(k) contributions are excluded from gross income and reduce your AGI. Other retirement contributions (IRA’s SEP’s etc…) are deducted in calculating your AGI.
2. Does your employer offer other tax deferred benefits?
Even in the industry, companies are beginning to catch up with the Jones’. Also, if you’re married and your spouse works, perhaps they have benefits you should be taking advantage of. Perhaps you have a FLEX account. Many employers utilize these accounts that give employees the ability to put away tax deferred dollars for various expenses. Take daycare, it’s a necessary expense for some families. Many companies allow contributions from your salary for daycare that are excluded from taxable income. This would reduce your taxable income and that all important AGI as well.
3. Have you maxed out your deductions? [Continue Reading →]
