| To make your mountain of documents easier to store, try scanning them and keeping them as PDF files. This way you can print them out if you need them. If you do this, remember to back up your computer as well, so you don’t have all your eggs in one basket. |
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It is usually at tax time that you realize whether too much or too little money was withheld from your paychecks throughout the year. Therefore, if you find yourself owing money to the IRS each year for several years, there’s a very good chance that you simply need to adjust your withholding number on your W-4.
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| Also, some life events, like a change in marital status, the birth of a child or buying a home, can change the amount of taxes you owe. When such events occur during the year, you may need to change the amount of tax taken out of your pay. |
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| Review your paycheck to make sure your employer is properly withholding and reporting retirement account contributions, health insurance payments, charitable payroll deductions and other items. These payroll adjustments can make a big difference on your bottom line. Fixing an error in your paycheck now gets you back on track before it becomes a huge hassle. |
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If you are self-employed or have additional sources of income, make estimated tax payments.
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In addition to being more palatable than one giant lump-sum tax payment in April, doing so may actually help you lower your overall tax bill by avoiding estimated tax penalties.
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| If you do your taxes yourself, are you sure you’re doing a good job? Could your time have been used more productively by hiring a professional? Maybe this is a good time to get a second opinion review. There is a possibility that you could get a bigger refund or identify potential problems. |
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| If you’re already using a tax professional, are they knowledgable? Do you have doubts about their competence? Will they still be in this business next year or are they a part-time preparer who just work a few weeks a year. Now would be a good time to interview tax preparers for next year. |
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| One other question you should ask yourself is: were you unhappy with your last tax bill? Well, the best way to make sure you don’t feel the same way again next year is by planning ahead. |
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| Make no mistake, tax planning and tax preparation are not the same thing. Tax preparation tallies up your income, deductions, exemptions, credits, etc. and calculates the amount of tax you owe. Theoretically, it does not change your tax liability, it should just report your taxes accurately and properly. |
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Tax planning, on the other hand, can help you change your tax liability in the future.
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Good tax planning implies the systematic analysis of differing tax options aimed at the minimization of tax liability in current and future tax periods. Whether to file jointly or separately, the timing of a sale of an asset, ascertaining over how many years to withdraw retirement funds, when to receive income, when to pay expenditures, the timing and amounts of gifts to be made, and estate planning are examples of tax planning. Obviously, a good tax expert is a sure bet both for tax preparation and tax planning.
And, very important, make sure you come back every week for more news and useful information for your taxes and financial health.
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