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Start Planning Now for Next Year’s Tax Return

by in Newsletter on May. 1, 2012

The tax deadline may have just passed but planning for next year can start now. The IRS reminds taxpayers that being organized and planning ahead can save time, money and headaches in 2013. Here are eight things you can do now to make next April 15 easier.

1. Adjust your withholding Why wait another year for a big refund? Now is a good time to review your withholding and make adjustments for next year, especially if you’d prefer more money in each paycheck this year. If you owed at tax time, perhaps you’d like next year’s tax payment to be smaller. Use IRS’s Withholding Calculator at or Publication 919, How Do I Adjust My Tax Withholding?

2. Store your return in a safe place Put your 2011 tax return and supporting documents somewhere secure so you’ll know exactly where to find them if you receive an IRS notice and need to refer to your return. If it is easy to find, you can also use it as a helpful guide for next year’s return.

3. Organize your recordkeeping Establish a central location where everyone in your household can put tax-related records all year long. Anything from a shoebox to a file cabinet works. Just be consistent to avoid a scramble for misplaced mileage logs or charity receipts come tax time.

4. Review your paycheck Make sure your employer is properly withholding and reporting retirement account contributions, health insurance payments, charitable payroll deductions and other items. These payroll adjustments can make a big difference on your bottom line. Fixing an error in your paycheck now gets you back on track before it becomes a huge hassle.

5. Shop for a tax professional early If you use a tax professional to help you strategize, plan and make financial decisions throughout the year, then search now. You’ll have more time when you’re not up against a deadline or anxious for your refund. Choose a tax professional wisely. You are ultimately responsible for the accuracy of your own return regardless of who prepares it. Find tips for choosing a preparer at

6. Prepare to itemize deductions If your expenses typically fall just below the amount to make itemizing advantageous, a bit of planning to bundle deductions into 2012 may pay off. An early or extra mortgage payment, pre-deadline property tax payments, planned donations or strategically paid medical bills could equal some tax savings. See the Schedule A instructions for expenses you can deduct if you’re itemizing and then prepare an approach that works best for you.

7. Strategize tuition payments The American Opportunity Tax Credit, which offsets higher education expenses, is set to expire after 2012. It may be beneficial to pay 2013 tuition in 2012 to take full advantage of this tax credit, up to $2,500, before it expires. For more information, see IRS Publication 970, Tax Benefits for Education.

8. Keep up with changes Find out about tax law changes, helpful tips and IRS announcements all year by subscribing to IRS Tax Tips through or IRS2Go, the mobile app from the IRS. The IRS issues tips regularly during summer and tax season. Special Edition tips are sent periodically with other timely updates.

The IRS emphasizes that each household’s financial circumstances are different so it’s important to fully consider your specific situation and goals before making large financial decisions.

Gift Expenses

by in Newsletter on Apr. 2, 2012

If you give gifts in the course of your trade or business, you can deduct all of part of the cost. Generally, you can deduct no more than $25.00 for business gifts you give directly or indirectly to each person during your tax year.

Entertainment Expenses

by in Newsletter on Apr. 2, 2012

Entertainment includes any activity generally considered to provide entertainment, amusement or recreation. Generally to be deductible for tax purposes, you must show that entertainment expenses (including meals) are directly related to, or associated with, the conduct of your trade or business. You must also have records to prove the business purpose (under the applicable test) and the amount of each expense, the date and place of the entertainment, and the business relationship of the persons entertained. Entertainment expenses are usually subject to a 50 percent limit.

Travel Expenses

by in Newsletter on Apr. 2, 2012

Travel expenses are “ordinary and necessary” expenses while away from home for the primary purpose of business. Keep all receipts and relevant documentation to substantiate where you went, why, for how long, and amount spent. If you combined business and personal travel, show how much is related to business.

Lodging receipts: These should show the travel location, duration of your stay, costs and expenses. Keep records for cleaning and laundry, telephone charges, tips, and other charges not shown separately.

Transportation receipts: These include airplane, train or bus ticket stubs, travel agency receipts, rental car or taxi receipts, etc., showing the amounts, dates and destinations.

Meal receipts: Generally, you must keep a log of your meal expenses and save receipts for amounts of $75.00 or more. The meal receipt must show the 1) name and location of the restaurant, 2) the number of people served, 3) the date and amount of the expense. Either track the actual costs of your meals, or use the standard meal allowance if you qualify You may only claim a deduction for 50 percent of the unreimbursed cost of your meals.

Car Expenses

by in Newsletter on Apr. 2, 2012

To take a business deduction for the use of your car, you must determine what percentage of the vehicle was used for business. No deduction is allowed for strictly personal use, such as commuting.

Deductible car expenses can include the cost of 1) traveling from one workplace to another, 2) making business trips to visit customers or attending business meetings away from your regular workplace, and 3) traveling to temporary workplaces.

It is important to keep complete records to substantiate items reported on a tax return in the case of car and truck expenses, the types of records required depend on whether you claim the standard mileage rate or actual expenses.

For actual expenses, add your annual car operating expenses, including gas, oil, tires, repairs, license fees, lease payments, registration fees, garage rental, insurance and depreciation. Multiply the car operating expenses by the percentage of business usage to arrive at your deductible expense. Business related parking and road tolls are fully deductible expenses that do not have to be reduced by the percentage of business usage.

Protect Your Personal Information: The IRS Does Not Initiate Taxpayer Communications through E-Mail

by in Newsletter on Mar. 20, 2012

Phishing is a scam typically carried out by unsolicited email and/or websites that pose as legitimate sites and lure unsuspecting victims to provide personal and financial information. All unsolicited email claiming to be from either the IRS or any other IRS-related components such as the Office of Professional Responsibility or EFTPS, should be reported. Forward the email as-is to IRS at

Plan Ahead for Your Retirement

by in Newsletter on Mar. 1, 2012

IRA, SEP, SIMPLE and 401(K) Plans

Whether retirement days are near or far, you should be up-to-date on the types of retirement plans available to you and your employees. The plans you will hear most about are IRA, SEP, SIMPLE and 401(K). In addition to providing for your retirement, they may offer significant tax benefits today.

IRAs are plans that let you set aside money for your retirement. Banks, financial institutions, mutual funds and stockbrokers are among those who offer IRA accounts.


Traditional IRA: To contribute to a traditional IRA, you must be under age 70 ½ at the end of the tax year and have taxable compensation greater than or equal to your contribution during the year. Contributions may be tax deductible in full or in part, depending on your circumstances. The amounts earned by your IRA contributions are usually not taxed until you withdraw the money. Generally you can’t withdraw money from your IRA before you turn age 59 ½ without paying income taxes and a 10 percent additional tax.

ROTH IRA: Regardless of your age, you may be able to set up a Roth IRA. You can’t deduct your contributions, but if certain requirements are met, earnings will be tax free.

SEP Plan: The Simplified Employee Pension was specifically designated for small employers and has very few administrative burdens or costs. Employer contributions are made directly to IRAs that the employer sets up for the employees.

SIMPLE Plan: Generally employers can set up a Savings Incentive Match Plan for Employees if they have 100 or fewer employees and meet several other requirements. A SIMPLE plan is an arrangement under which an employer makes contributions to employees SIMPLE retirement accounts. Additionally employees can make salary reduction contributions. The two types of SIMPLE plans are the SIMPLE IRA and SIMPLE 401(k) plans.

401(k) Plan: 401(k) plans are the most popular type of retirement plan used today. They can be a powerful tool in promoting financial security in retirement for employees and are a valuable option for businesses considering a retirement plan. Employees may defer a portion of their salary as either a pre-tax or an after-tax contribution. As with IRAs there are different kinds of 401(k) plans. Depending on the type, the employer can make either non-elective or matching employer contributions.


If you have any questions about your retirement plan(s), please give us a call at 336-761-0366 or Click Here to visit the Kensington Financial Group website.