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.


Top Ten Things To Do During Tax Season (Apologies to David Letterman)

10. Get your things organized and to your preparer as soon possible to avoid needing to file an extension.

9. If you owe a lot or are getting a big refund, adjust your withholdings or quarterly estimated payments now.

8. If you can deduct an IRA contribution and owe tax, consider making a contribution before April 15 and getting it on your 2010 tax return.

7. If you live in Colorado, have kids in college, and don’t have a Colorado 529 plan, set one up and put this year’s tuition in it now.

6. Start your file now for 2011 tax data.

5. If you’re going through a divorce…oh shoot, taxes are the least of your problems.

4. Start a mileage log with a section for charitable miles, medical miles, and business miles.

3. Keep track of all your out of pocket business expenses.

2. Keep organized on your other financial issues, not just taxes.

1. Reward your tax preparer with chocolate – especially if it’s me!

Top Ten Reasons to Participate in Your Company Retirement Plan

Now that tax season is over, folks are taking a look at their bigger financial picture again.  With all deference to fabulous late night talk shows, here are ten reasons to consider putting some of your hard earned wages into an account with your employer’s retirement plan.

10. The company is required to provide a variety of investment choices and access to information about those investments.

9.  You’ll save taxes on the money you put in the plan now and you’ll probably be in a lower tax bracket when you take the money out after you retire.

8.  Forced savings – if you don’t get it in your pay check now, you don’t spend it now.

7.  It keeps you from trying to time the market.  The money gets invested every month. 

6.  The balances you have in retirement accounts don’t usually count against your kids’ ability to qualify for student financial aid.

5.  Many companies contribute some money to your account if you contribute.

4.  Lots of retirement plans allow you to borrow against your account if you need to. 

3.  If you want to “buy low” in the market, this certainly seems like the time to do it!

2.  You can brag to your friends at parties about your investment portfolio.

1.  You’re putting away money for retirement.  When you’re old and grey, you’re less likely to have to go to work and ask strangers, “Do you want fries with that?”



Tax Refunds

You may think that income taxes are something people think about between January 1 and April 15 of every year.  Or maybe you think if people are really good planners, they think about taxes during December before “tax season” starts.  But this is one of the best times of years to think about your income taxes. 


First, realize that it’s generally not good to get a big refund.  The IRS doesn’t pay interest on money it’s been holding on to for you, so when you get a big refund check, that money wasn’t earning anything for you while it was waiting for you to claim it.  Most of us would rather have a better return on our investment than that. 


Second, there are times when having a big tax bill can be ok.  If you pay into the IRS what you owed last year (or slightly more if you’re in the higher income brackets) you can generally pay what you owe by April 15 and not be out any interest or penalties.  So even if you’re keeping the money in a savings account, you’ll probably come out ahead.


A real key is realizing that what you owe doesn’t have to be a surprise!  A good tax professional can look at what your taxes looked like last year, what you’ve got on your financial plate this year, and then give you some idea of what your tax return might like for the year.  They can even generate a W-4 to adjust your paycheck withholdings up or down, or give you some estimated tax calculations and forms to send in.  What they charge you could save you in penalties or give you some extra cash flow now to invest. 


This is the perfect time of year to plan for your taxes.  You’ve still got time to do something about it and avoid a surprise next year.  And, your tax preparers would love to see you.  They get lonely this time of year. 

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!