Time for Tax Planning

Okay, I admit it.  I feed this squirrel, which is why he’s hanging out and staring me down.  I suppose I fascinate him, because every time he sees me, I’m working.  Perhaps he feels sorry for me.  Or he’s just hungry again.

He’s shaken me down for enough food that he’s set for the winter.  He’s got nothing to worry about, except for the neighbor’s cat, who I also feed.  (He prefers to eat at my house than his own.)  Too bad none of these dependents make it to my tax return.  Which of course, brings me to next year’s tax return.

The squirrel is all set for the year, but are you?  Have you done any tax planning?  Or do you think all you need to do is toss your documents at your preparer in April?  Will there be tears and tantrums if you get a big tax bill instead of a big refund?  Without planning, where do you stand?  There are changes every year to take into account.   Some people get married and are surprised by a large tax bill, because the things that worked when they were single suddenly do not work now as they are in a higher tax bracket, and they have a huge balance due.  Others have more deductions available to them during the tax year (perhaps large donations, a new dependent, a new house purchase bringing  real estate taxes and mortgage interest paid, for example), and they can adjust their allowances at work to have more money now in each paycheck, as opposed to a large refund.

Even if you prepare your own tax returns, it’s a good idea to do planning, perhaps even with a tax professional, to get some perspective on where you stand now, and to put any necessary changes in motion before the end of the year.  Once December 31st comes, it’s all over.  The window of opportunity has closed on almost everything.

Ready for some planning?  Time to pull out your important paperwork – paystubs, account statements, donation receipts, last year’s tax return, etc. and give yourself some interrupted time.

Here are some of the things to look at:

  • Is your withholding at work sufficient? Did you start a new job and submit a correct Form W-4?  Compare the withholding to last year’s salary.
  • Any major changes you should take into consideration? For example, marriage/divorce; large salary change; the sale of any restricted stock options, etc.
  • Will you max out your retirement plan at work by year end?
  • Will you fully fund an IRA by the deadline?
  • If you have children, do you have a 529 plan in place for their education? How much have you contributed so far this year?
  • Do you have any overseas accounts that will involve you chasing down statements that might take some time?
  • Cleaning out the garage? Have you valued the donations using a reasonable valuation guide for the fair market  value and attached a list to the signed and dated donation receipt?
  • Self-employed? Those books and records need to be in order NOW.  Estimated taxes need to be paid and they are based on net profit.

The takeaway here is that you can’t chase these things down next April and expect a positive outcome.  A little bit of planning now will plant the seeds for a peaceful tax filing, with better results, since your receipts will be organized and you know where you stand.

And speaking of receipts, if you have fading receipts, it’s time to digitize them before they are blank.  If you walk into an IRS audit with a faded or blank receipt, the IRS will allow you exactly what they can see – nothing.  As I always say, a scanner is your best friend.  One of the best investments you can make.

Time to go feed the squirrel, before the neighbor’s cat shows up.  Happy planning!

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