It's that time of year again to put a plan in place for tax season
The income tax filing deadline is still a long way off but it's not too soon to start planning, say financial experts.
Some tax breaks are still available -- for example, an energy tax credit of up to $500 for energy-efficient doors, windows and similar items purchased before Dec. 31.
There's still time to make tax-deductible charitable donations before the end of the year.
And when families get together for the holidays, they can use the occasion to sort out who will be claimed as a dependent on whose taxes.
The main advice: "Just keep good records," advises Craig Holter, a certified public accountant with the Willmar accounting firm Ruff and Company.
A recent survey by the Minnesota Society of Certified Public Accountants found that for individual taxpayers, overpayment or underpayment of their income tax is one of the most common problems. For businesses, the most frequent issues were improper recordkeeping and mingling of business and personal expenses.
Collecting key documents will help taxpayers organize all the paperwork they'll need when it's time to file their taxes, Holter said. "Keep track of items as they come in -- W2s, broker statements, investment sheets."
Receipts are needed in order for taxpayers to claim certain deductions.
Some job search expenses, for instance, are deductible, and claiming them can help offset unemployment benefits that are taxable.
Individuals who are newly self-employed need to keep accurate records of all their non-reimbursed expenditures, along with expenses related to maintaining a home office. Farmers can take advantage too of the home-office deduction, but they need to keep track of utilities and improvements.
Good recordkeeping is a must for claiming charitable contributions as a deduction, Holter said. "That's gotten more strict. If it does come to an audit, the receipt is almost always required."
When making non-cash contributions to charities, such as clothing or household items, the Minnesota Society of Certified Public Accountants recommends taking an inventory of the items before donating them, so the cash value can be calculated accurately.
How long should you keep all your records? Audits can go back three years, so business and individual taxpayers should maintain a paper trail for at least that long. Many financial advisers recommend hanging onto records for seven years.
Besides good recordkeeping, it's also important to know which tax breaks or credits you might be eligible for.
Farmers, for instance, who buy seed, fertilizer and other supplies before the end of the year can claim a higher deduction when they file their 2011 taxes. If they buy equipment and put it into use before Dec. 31, they also can take a 100 percent bonus depreciation on the cost of the equipment.
Taking advantage of tax breaks for students can make a significant difference in the taxpayer's bill, Holter said. "If you have anybody in college, the education credits are huge."
Credits also extend to individuals with lower incomes -- for example, a saver's credit for contributing to a retirement plan.
Even if it's too late to change financial decisions made earlier in the year, it's not too late to start planning for next year, Holter said. "We highly recommend a tax planning session before year-end, especially for businesses. There are things you can do to be able to plan for the coming year."