11 Things You’re Embarrassed to Ask About Taxes
4. What receipts should I be saving throughout the year, so I can “write them off?”
Let’s back up a moment and define this. When people talk about ”writing off” items for tax purposes they mean that they’re deducting that expense from their taxable income. (See question 2, above.)
How you take your deduction is up to you: You can either take the standard deduction (from $5,950 to $11,900 for tax year 2012), or you can itemize, listing out a lot of different deductions in the hopes that they add up to be bigger than the standard deduction. So you should only save receipts for things like charitable donations if you’re itemizing. Otherwise, don’t worry about it. Find out if you should itemize.
But there are some deductions you can take without itemizing. Those include student loan interest, supplies if you’re a teacher (though only up to $250), moving expenses, alimony, tuition you’re currently paying and IRA contributions. So, save receipts and records of those regardless of whether you’re itemizing.
If you freelance, you don’t need to itemize to write your business-related expenses off. All those things will be listed out on your Schedule C. You can deduct as little as $5 for coffee with a business contact. So save your receipts for gas, taxi fare to meetings, materials, client dinners and other stuff necessary to running your business.
5. How do I know if I need an accountant? What should I look for?
Whether you need an accountant depends on how complicated your finances are. Going through a big life change, itemizing your deductions, owning your own business, being a freelancer, having complex investments or stock options are all situations in which an accountant would be a good investment. To get a more definitive answer, take our quiz.
If you do decide to hire an accountant, whoever it is should obviously be certified and registered with the I.R.S. Ask for their Preparer Tax Identification Number (PTIN). If you’re just doing your own personal taxes (not freelancing or business taxes) and you’re a full-time employee with simple finances, Vient suggests you go with an Enrolled Agent, which can cost you about 30% less than a CPA. More complicated situations call for a certified public accountant.
Next, look for someone with your values and who has gone or is going through your life stage: a parent if you have kids, or an older preparer if you’re retired, for example. If you’re in your early 30s, a 70-year-old might not be right for you, because they might not be as tech-savvy as you.
Finally, if you own your own business, you’re looking for someone who is skilled in dealing with business taxes. “You’re looking for someone to be your personal CFO,” Vient says. “They should be excited about your business.” And they should be proactive. “They should be emailing you quarterly, and contacting you in October to talk about tax planning.”
6. Since I’m freelancing, none of my taxes are being withheld from my paycheck. So … what do I do?
If you’re a sole proprietor (as in, you’re the only one running the “business” and you’re not legally incorporated), simulate withholding by sticking 25 to 30% of your income in a savings account. You should pay your taxes quarterly to the I.R.S. to avoid fines.
Find out more about taxes for freelancers.