Prepare for 2011 Taxes Now

While making my way through tax season, I see several items that can be done year round to make your life easier from a tax perspective.  Here are just a few that can save you time and money.

Cost basis – Technology and regulatory reform have made keeping track of what was paid for investments easier, but not perfect yet.  Any time you move investments from one financial institution to another, make sure you ask the institution that you’re leaving for the cost basis on the investments.  It’s much more difficult to go back years later and ask about an account that was closed a long time ago.  That’s especially true if the investments moved into your name from a divorce.  Get the cost basis while the paperwork from the divorce is being processed.

Items donated to charity – Each time you take a pile of used stuff to a charity for donation, make a list of the items and attach it to the receipt.  Then total the thrift store value of those items on each receipt.  The IRS wants pretty specific records for donations like these, not just an indication of how many bags or boxes of things you gave.

Tax planning – If you’re either getting a big refund or paying big every year, you’re not managing your taxes well.  If you owe a lot each year, you’re probably paying interest and penalties which is a waste of your money.  If you get a big refund each year, the IRS has your money and you need to wait until you file your return to get it back.  The IRS won’t give it to you mid-year just because you ask, nor will they pay you interest when they send your refund.  They shouldn’t have to since they’re not a bank.  A good tax professional can help you estimate what your withholdings and quarterly estimated tax payments should be during the year.  Then your refund or what you owe should be a manageable level. 

Consistent preparation – Find a good tax professional and stick with them.  This is efficient on many fronts.  If the preparer isn’t just entering data and doesn’t have too many clients, they will become familiar with your situation and be able to suggest some tax saving strategies as well as have a pretty good idea if you’ve missed reporting some income or claiming some deductions.  Even the preparer’s software helps with that by keeping track of items from one year to the next.

You don’t need to have your life revolve around your annual tax return.  But being just a little proactive can help your tax filing be more accurate and easier to prepare.


Putting Your Money Where Your Mouth Is

People who have a passion manifest it in how they live their lives.  This manifestation often comes in the form of deeds rather than words.


An example is Scott Staub.  I don’t really know Scott – just sat next to him on a plane.  But we chatted during our flight and got to talking about what we both do for a living.  Scott is Vice President of Fund Development for EMQ Children & Family Services.  His employer advocates for children to put them with good families and reunite them with their own families when practical.  It’s hard not to be impressed that someone derives their livelihood from such work.  When we chatted, we got to talking about kids and money.  Scott doesn’t have kids, but he’s active as an uncle as well as with the son of a single mom who’s a friend of his.  It’s clear that he’s a wonderful role model for these kids.  When a nephew turned 14 recently, Scott’s gift was a promise of money to the nephew as well as a donation to a charity of the nephew’s choosing on the nephew’s behalf.  And the nephew would receive his share of the money after he’d identified his charity and discussed it with his Uncle Scott. 


So here’s a man who’s part of a positive financial force through his career for many more kids than most of us parents are ever able to touch.  His work will have a huge impact on the lives of kids who desperately need it.  Outside work, the kids he has a personal relationship with can see the value of working in a profession that makes a difference in people’s lives and they get experience in how to make a difference for others in the world who need it.  In my chat with him, he wasn’t boastful about his life or critical of how other people live their lives.  He’s just doing what he feels led to do. 


If you were gone from this earth tomorrow and someone who didn’t know you was settling your financial affairs, what would they be able to see about what’s important to you?  Would they see someone who loved to eat out, had a great wine collection, and went on some fabulous trips?  Or would they see someone who supported those in need and made a positive difference in the world?  What would those who knew you tell others?  Would they comment on how big your house was and tell stories about the business adversaries you brought to their knees?  Or would they tell how you were the first person to motivate them to research a non-profit so you could make a donation? 

It’s A Wonderful Life

Imagine that you were suddenly gone from this earth tomorrow and a stranger was tasked with reviewing and closing out your finances.  What would that person learn about you?  Would they know that you have a big house?  An expensive car?  Drink lots of fancy coffees?  Spent more than you made?  Or would they see that you care about others who don’t have as much as you?  That you had plenty, but not too much?  That you earned a good living and gave generously to those you loved? 


Too often we can all let money become our goal instead of letting money fund our goals.  A New Year is a time when many people can reassess what they do and why they do it.  So now is a great time to decide to let what and whom we love be the driving force behind our financial decisions.  It’ll make your New Year more productive than you can imagine. 

Year End Tips

We’ll finish up the year with a few tips over the next week and a half with some ideas to help you get through the year working on your financial well being.

“In Kind” Charity Donations

Clean out your closet and take what you’re not using/wearing/playing with to a non-profit thrift store.  I don’t mean a consignment store.  I mean one that sells your “gently used items” and gets to keep the money.  Goodwill and Salvation Army are in most communities, but also many churches, homeless shelters, and safehouses have these thrift stores, soo.  Either make a list of the items or take some pictures that you can attach to a receipt.  Don’t just drop the items at a drop box, go to a manned collection site and get a receipt.  Than attach your list or pictures of items.  Before you give your tax documents to your tax preparer next year, find out what source he/she uses to value used items.  Total that up and include it with your tax documents.  If you can itemize, you’ll get a better deduction with the excellent documentation.  Someone needs those items and will appreciate that you gave them.  Also, you get a clean closet!