Time to Start Thinking Taxes

Time to start thinking about taxesEven though tax day is still more than 2 months away, it’s never too early to start gettin yourself organized and ready to file, so you’re not one of the millions of procrastinators who wait til the last minute to file, or have to file an extension because you just weren’t ready.

This is one in a series of occassional articles about your taxes. For other tax related articles, click the “Taxes” Category to the right to see our full list of tax related content and tips.

1. Know your filing status — If you’re single, you can’t declare on your tax forms and returns that you are married nor can you claim someone as a dependent who isn’t. Unfortunately, tax forms including W-4 forms are sometimes incorrect. These forms should reflect your tax status as of December 31 of the filing year, and should be reviewed by you annually. Your marital status may have changed as might the number of dependents you have.

2. Keep your receipts — Receipts are important and should be kept on hand, offering proof of purchases made or donations given. If donating to a charity, you’ll want to get a receipt from that organization showing the items you donated. You may be able to value these gifts yourself too.

3. Use tax prep software — There are a number of tax preparation software programs available for you including TurboTax, TaxACT, Tax Cut and Tax Works. Such programs are inexpensive and can be ordered online and downloaded to your computer. Unless you’re using the services of a tax prep professional, these programs are an excellent alternative and can save you money.

4. Take a loss — Stocks or bonds that are performing poorly may not be worth holding onto. If you anticipate that you’ll lose money on the sale of such investments, take the loss and show it on your income taxes. That loss will reduce your tax burden. You can reduce it further by donating your investments to an eligible charity. Note: In order to take a loss for last year, the loss must have been recorded last year. You can’t sell poorly performing stocks or bonds now, or you’ll have to claim them NEXT year when you file for this tax year.

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5. Fund your retirement plan — If you have a retirement plan, the funds you contribute are generally not taxable until you begin to make withdrawals. See your financial advisor to discuss options that are available to you. Prepare for the future and keep your money out of the hands of the federal government.

6. File on time or obtain an extension — Failing to file on time can lead to serious consequences. If for some reason you can’t finish your taxes by April 17 (you get two additional days this year), request an automatic 6-month extension to October 15. Whatever money you owe the IRS still has to be paid by April 17th, but the later filing deadline can buy you some much needed time as you finish gathering your documents.

We’ll have more tips on taxes as we get closer to filing time in April. Stay tuned!