Taxes have the potential to be overly complicated. So, make sure you do your own research and get to know the rules.

It never hurts to ask about significant transactions and what you can do to reduce your tax liability and what credits are available. Stay curious!

“Keep an ear out for new legislation….it matters!” said Dillon Kotter of Kotter Tax & Accounting in Richfield. “Tax law might be boring, but significant changes are happening all the time. Just a few weeks ago, on Dec. 29, the Secure Act 2.0 was passed that brings significant changes to retirement accounts and business/individual tax returns. Due to the holidays many people might not have heard of the changes that include additional catchup contributions, delayed RMD requirements, and more access to ‘Roth’ type accounts.”

These catchup contributions refer to retirement accounts for people over a certain age. These individuals can save more tax-deferred income than younger people.

RMD stands for Required Minimum Distribution, a withdrawal from a tax-advantaged retirement account at a certain age. Roth is a type of retirement account that you invest with after-tax dollars, then it grows, and you withdraw it without taxes.

Don’t ignore something just because it didn’t count as a significant deduction in the past. Use last year’s taxes as an example, but continually look out for any deduction or credit that might be available.

For example, in 2021 the Dependent Care Credit was significantly increased in both dollar amount and availability to higher-income people. Individuals believing the old rules still applied may be losing out on credits for daycare costs & babysitters.

“We see many businesses and individuals who previously deducted outlandish items that will surely hurt in an audit, while, at the same time, missed out on very legitimate large deductions,” said Kotter. “A little research can go a long way to both saving you taxes and keeping you out of trouble.”

Large benefits exist for equipment purchases, retirement plans, and timing of income and expenses for businesses. Diving into detail can save you a lot of taxes.

Running all business expenses through bank/ credit card accounts will ensure you capture every small dollar spent on the business. Keeping an accurate and ongoing log of business miles may sound tedious but can save hundreds or even thousands of dollars in tax liability. The total sum of many small dollars, or miles can add up to a considerable sum of legitimate deductions.

For individuals, ask about energy-efficient purchases (including insulation), charitable contributions, and how to maximize your taxes while kids are going to school.

“Keep good records to ensure you are protected in case of inquiry,” said Kotter. “The IRS generally can open tax returns up to three years, six years for large misstatements, and forever in the case of fraud. Our recommendation is to keep detailed receipts/ records for seven years and copies of your tax returns indefinitely.”

Watch significant swings in your income or tax liability year to year and get a second opinion if something looks off. As complicated as taxes can be, errors are easy to make, and a small error can sometimes mean unnecessary consequences on your taxes.

Additionally, your taxes may be prepared correctly, but things can still be done to reduce your overall tax liability such as dropping additional money into a retirement account.

“Finally, never blindly sign your taxes prepared by a professional or by you using software,” said Kotter. “You are on the hook for any taxes owed and significant penalties and interest may apply for misstatements.

“You don’t have to be a tax professional to have a basic understanding of your income, tax liability, and significant changes from the prior year. For your overall financial health, it’s important to have a basic level of understanding of your income, assets, liabilities, retirement, etc. Start where you are and ask questions to build your understanding. Decide where you want to be financially and find the right people to help you get there.”

There is a free option to have taxes done by volunteers. You can make your own appointment at earnitkeepitsaveitutah.org, or call (435) 893-0728.

The tax filing deadline for the 2022 tax year is Apr.18 according to the IRS website. If you want to speak to Dillon Kotter with questions, or to make an appointment, Kotter Tax & Accounting can be reached at (435) 896-4470.