What you do today -- and every day -- will affect what you pay and what you keep next spring.
There's a lot to misunderstand about income taxes. However, my birthday is April 15th, so I am particularly qualified to give tax advice. I don't know everything, however. If you need help in setting up bank accounts in Switzerland or the Cayman Islands, ask Mitt Romney.
Years ago, when I lived in New York City, I had a simple formula that worked very well (i.e., no audits ever, and refunds every year):
- No more than 10% for the feds.
- No more than 5% for the state.
- No more than 1% for the city.
I'll pass on a tip for a deduction I developed while working as an advertising copywriter and have continued to use as a webmaster, writer and publisher.
EVERY piece of media you consume should be deducted in the range of 25% to 100%. Deduct movies, CDs, games, concerts, artwork, vacations, MP3 players, big TVs, books, magazines, newspapers, iPad, smart phone, museum visits... all that stuff that helps you stay aware of trends in culture.
Years ago my father owned a chain of clothing stores. He once considered deducting his subscription to Playboy (which did provide news and advice about men's fashions among the airbrushed large-breasted babes). Alas, he was afraid to list a skin mag on his tax return, so he sent too much money to the IRS. I have no such reluctance -- and may have bigger cojones.
With proper classifications, you can probably get Uncle Sam to subsidize porn, booze and hallucinogens.
Here's some more advice of uncertain value:
- A successful small business is one that breaks even each year, with a slightly higher gross income.
- Big profits are nice if you're trying to sell the business, but not when you're filing your income tax return.
- Write about stuff you like, whether it's wine, sports cars, clothes, travel, cameras, horse racing or sex. Then you can deduct everything you spend on fun -- if you classify it as "research."
- There's almost nothing that's too crappy to donate to Goodwill Industries or the Salvation Army and claim an appropriate deduction for. Bill Clinton was criticized for claiming a deduction for donating used underwear. I'm not the president and don't care what Sean Hannity or Rush Limbaugh will say about me. I lost a lot of weight a few years ago, and I donated lots of oversized underwear. Washed, of course.
- If you are bad about saving money for a rainy day, it’s tempting to let Uncle Sam save money for you. I did that for years, and even earned interest on the money that was due me. Now there is a limit to how long you can let your money sit in Fort Knox (or wherever they keep the surplus) and the IRS may assess a penalty just for filing late, even if you don't owe anything, so check with a pro. Also: your state tax people may be tougher than the IRS.
I put a lot of what I've learned into an ebook. It can save you many times its low cost.