There is plenty of tax advice floating around this time of year but the problem, as you may expect, is that not all of it is useful for everyone. Sure, you can throw read every piece of advice out there but some of that advice is worth ignoring or at the very least, investigating further so you can find out for yourself if it will actually benefit you.
We asked Mike Callahan, tax director at Spicer Jeffries LLP in Greenwood Village, CO, to pay us another visit, this time with ideas or strategies that he thought were overrated so that you can sort out some of the noise.
• Buying a car for the “write-off” – Mike told us that deductions related to depreciation on cars are extremely limited. He said, “If you need a new car, fine. But don’t expect a huge tax benefit.”
• Maxing out your mortgage – According to Mike, borrowing as much as possible to purchase a home because of the interest deduction is not worth it. “If your combined federal and state tax rate is 30%. 70% of your interest payments are going out the door.”
• Check your W-4 – Withholding a lot of taxes during the year so you can get a big refund is not the way to go. Mike puts it this way, “You just gave Uncle Sam an interest free loan. Adjust your withholding so you come close to breaking-even at tax time.”
• Running up a credit card on deductible expenses before year-end – This one should be a face-slap moment but, “Using a credit card to prepay expenses before year-end if you can’t afford to pay the balance when the bill comes next month.”
• Don’t sock money in an IRA away if you need it now – Mike said that saving money doesn’t do much good if you plan to withdrawal it later, “[Don’t] contribute to an IRA when you need the money. You’ll end-up withdrawing the funds andsubjecting yourself to a 10% penalty,” and more taxes. And by “need” Mike isn’t referring to your Range Rover payment. Good choices people.
More tax advice:
Six Small Business Tax Strategies for the Entire Year
Tax Day Countdown: Five Tax Planning Ideas for Individuals
[I]f we are going to make real progress, we can’t fixate on every overhyped, half-baked tax slogan that comes along. Sooner or later we must get back to basics. Here’s the main question: Should taxes be cut, raised, or reformed without changing overall revenue? The answer is that taxes should be cut in the short term, raised after we are clearly out of our cyclical downturn, and then reformed only after we have settled on the magnitude of tax increases needed for deficit reduction. [