Tax season has officially begun and it’s time to find those deductibles and items that might help offset some of what you might have to pay the government by April 15.
For African-Americans, filing income taxes has never been simple – nor has it historically been anything to look forward to.
“One thing that’s certain at the top of each year is tax season. Yes, that one thing that most of us dread yet we know we have a short window of time to complete what should be done as the new year begins,” said Cozette M. White, an acclaimed author, financial analyst and tax strategist. White is also founder and CEO of My Financial Home Enterprises, a financial management firm that helps organizations and entrepreneurs develop solutions that fuel business growth and transform products into accelerating profits.
White said it’s important to decide early on who will be preparing your returns. “Tax preparers are the least trained, but the cheapest to hire,” she said, noting that enrolled agents are typically more competent than tax preparers but much less so than a certified public accountant.
Further, White said it’s important to be organized – set aside a manila folder for all tax documents.
“Schedule your appointment early, especially if you have a child applying for financial aid and, if you have not updated your payroll department with your new address, do so today to avoid delays,” she said.
The new tax year accompanies an interesting set of new facts for African-Americans, according to the White House.
For instance, the unemployment rate for African-Americans has seen a larger percentage-point decline in the recovery, much faster than the overall unemployment rate over the last year, President Barack Obama’s administration reported.
The real median income of Black households increased by 4.1 percent between 2014 and 2015 and President Obama enacted permanent expansions of the Earned Income Tax Credit and Child Tax Credit, which together now provides about 2 million African-American working families with an average tax cut of about $1,000 each.
A recent report from the Census Bureau revealed that the real median household income grew 5.2 percent from 2014 to 2015, the fastest annual growth on record.
Income grew for households across the income distribution, with the fastest growth among lower- and middle-income households. The number of people in poverty fell by 3.5 million, leading the poverty rate to fall from 14.8 percent to 13.5 percent, the largest one-year drop since 1968, with even larger improvements including for African-Americans, Latino-Americans, and children.
The poverty rate for African-Americans fell faster in 2015 than in any year since 1999. While the poverty rate fell across all racial and ethnic groups this year, it fell 2.1 percentage points for African-Americans, resulting in 700,000 fewer African-Americans in poverty.
African-American children also made large gains in 2015, with the poverty rate falling 4.2 percentage points and 400,000 fewer children in poverty.
So, for tax time, it means more African-Americans need to better understand what they should and shouldn’t do; what deductions and credits might be available, White said.
The veteran tax expert urges contributions to 2016 Roth accounts and, if donations have been made to charities in any amount above $250, be sure and have the proof to support the write-off.
The Internal Revenue said charitable contributions are deductible in the year made and donations charged to a credit card before the end of 2016 count for the 2016 tax year, even if the bill isn’t paid until 2017.
Also, checks to a charity count for 2016 if they are mailed by the last day of the year.
Taxpayers who are over age 70 ½ are generally required to receive payments from their individual retirement accounts and workplace retirement plans by the end of 2016, though a special rule allows those who reached 70 ½ in 2016 to wait until April 1, 2017 to receive them.
So, what else can be done to limit tax liabilities for individuals and businesses?
“Defer bonuses,” said Lisa Greene-Lewis, a certified public accountant and Turbo Tax expert. “If your hard work paid off this year and you are expecting a year-end bonus, this extra money in your pocket may bump you up to another tax bracket and increase your tax liability,” she said.
Folasade Ayegbusi, a certified public accountant (CPA) and owner of Suncrest Financial Services in Maryland, advises business owners to call their payroll processing company and have them process a one-time annual salary amount to satisfy any S-Corp reasonable compensation requirement.
Also, she said, purchasing depreciable assets like a car, furniture, iPad, computer and other items needed for a business would help offset any tax burden.
Randy Hughes, founder of Counting Pennies, a nationwide tax and accounting firm that specializes in tax preparation, bookkeeping and debt management, said African-Americans need to immediately think about taxes and not wait until the April 15 deadline.
Hughes recommends making wise business purchases, maximizing health savings accounts and managing tax withholdings and exceptions.
“Employees that changed jobs or started a new job should review their tax withholdings and exemptions claimed on their new hire paperwork,” he said. “Claiming too few exemptions could result in giving the government more money than necessary, which could result in a cash flow problem for you during the year.”
Perhaps as important as any suggestions, the IRS said it continues to see an uptick in tax scams – one of the most recent involved a caller telling a taxpayer that he or she is entitled to a large refund, but first must hand over a certain amount of money first.
“Taxpayers across the nation face a deluge of these aggressive phone scams,” IRS Commissioner John Koskinen said in a statement. “Don’t be fooled by callers pretending to be from the IRS in an attempt to steal your money. We continue to say, ‘if you are surprised to be hearing from us, then you’re not hearing from us.’”