Do you fully understand your tax return? Are you paying too much in taxes simply because you are not aware of all the variables involved in compiling your 1040?
Doug Mueller, President of Mueller Prost PC, a St. Louis accounting firm, appeared on TNtv to discuss how you can save money on your next return.
In the first of a two-part TNtv segment, Mueller discussed the impact knowledge and planning can play in helping you reduce your tax burden.
Mueller said a lot of tax returns are very thick and/or sent to the individual in the form of a CD. The recipient may never look at the return and just assume all the information is correct and properly calculated.
The Four Types of Income Taxes Detailed
Mueller said now there is not just one income tax to consider but actually up to four different ones affecting your payment structure.
1. Standard Income Tax.
This is the one most are familiar with and involves ordinary income and capital gains.
2. Alternative Minimum Tax.
This was created in 1978 and was essentially targeted at a handful of extremely wealthy families. However it was never adjusted and now impacts millions of upper middle class tax payers, mostly those earning $150,000 to $750,000 per year. It is often referred to as a penalty tax. It does provide for some options such as a carry forward credit which can be applied to the following year’s return.
3. Self Employment Tax.
This started as FICA and Social Security taxes. Then it was expanded to include business owners. This tax is impacting both large and small businesses. It is a based on how a company is structured. This can be an LLC taxed as a partnership or as an S Corporation. In most cases, S Corps tend to get more favorable treatment.
4. Net Investment Tax.
This tax impacts married couples earning $250,000 per year or more, and single persons earning a minimum of $200,000 annually. In many cases it can cause an individual to pay taxes on their investments and/or passive incomes.
Mueller said proper analysis and planning can help individuals deal with the four taxes and take advantage of the tax options available to them.
For additional information contact Mueller Prost , CPAs and Business Advisors, at 314-862-2070.
Watch the full episode below and check out part 2 of our conversation on TNTv.