Take Control this Tax Season

BREATHE! 

Deep breathing supplies more oxygen to the brain, relaxes your body, and can help you concentrate.

CLAIM YOUR SPACE!

Choose a specific area in your home where you will do your tax preparation. Be sure you have lots of light, no distractions, and plenty of room to spread out and organize your work.

GET ORGANIZED!

First, if your records are not already in order, we suggest you adopt the
“My-velope System”.  Just follow the 4 easy steps below:

For this year’s tax season, find all of your receipts for the calendar year 2004. For next year’s tax preparation, start saving all of this year’s receipts NOW.

1. Purchase a supply of standard business size envelopes.
2. Label each envelope by spending category.  Some of these categories may include:

1. Doctor bills
2. Dentist bills
3. Other health related expenses, such as vision care, hearing aids, etc.
4. Pharmacy receipts
5. Charitable contributions
6. Investments
7. Retail Cash receipts
8. Gasoline purchases
9. Food
10. Travel and transportation
11. Education expenses (tuition, books)
12. Credit card receipts 
    
3. As you gather a receipt, place it in its proper envelope category.  By year’s end, you will have a complete, organized record of all of your expenses.
   

Second, collect the following forms and records:

• Form W2 and 1099
• Bank Statements for the calendar year
• Brokerage & Mutual Fund Statements
• Form K-1 (for partnerships)
• Canceled checks or other proof of payment
• Home purchases and sales agreements, closing statements and insurance records.

What if you don't receive your W-2 or 1099 forms by Jan. 31?  What can you do? Your employer is required by law to distribute your W-2 to you by February 15. If you do not receive it by then, you may contact the IRS and let them know. 

If you have expenses withheld from your paycheck, such as union dues, medical insurance, or 401K Contributions, keep your pay stubs as proof of payment.  Other deductions you may need to document include alimony, mortgage interest, childcare expenses and real estate taxes.

CHOOSE YOUR TAX FILING METHOD!  You may wish to hire a tax professional if you have had any major changes to your income such as an inheritance, lottery winnings, an investment windfall, or the like, or simply feel overwhelmed at the thought of the task.  On the other hand, if your goal is to prepare your own tax return, there are great software programs for help with tax preparation, such as TurboTax, Quicken, or TaxAct. These programs are inexpensive and will walk you through your tax return with a series of questions that make it a relatively painless process.

AVOID PROCRASTINATION!
Get started now. The sooner you start, the more time you have to correct mistakes. Plus, finishing early is a plus!  The earlier you prepare your taxes the earlier you know if you are receiving a refund or if you owe taxes.  Also, the earlier you file the quicker you can receive your refund.  You can even file your return online for a faster turnaround, if you don’t mind paying a fee for the convenience and speed.
Another advantage of having your taxes finished early is that if you owe money to the government, you have some time to figure out how you’ll pay. You can pay in installments, pay by credit card, or if it looks like you won’t be able to come up with the funds on time, you can file for an extension. To use an installment plan or get an extension, you still need to file the correct forms by April 15.
BE INFORMED!
Due to new legislation, many tax laws have changed. There are new write-offs for state and local sales taxes, new deductions for contingent attorney fees, tightened rules for non-cash donations, etc. Get the information from a trusted source. For instance, most single filers go to professionals and they’re encouraged to complete EZ forms. Actually, longer forms give more opportunity to cut taxable income.

KNOW YOUR CHOICES!
For example, if you do not have the funds to pay the IRS by April 15 you can file for an extension. 
There are still penalties and interest, but the interest is only 0.83% instead of just doing nothing and 
paying interest between 5 to 25% on the unpaid balance.  This could mean a huge savings to you!

REWARD YOURSELF!
When all is said and done and your tax return has been completed, either by you or a tax professional, go ahead and treat yourself!  A job well done deserves a night out, a massage, or a movie.  You can relax until next year, and by using the M-velope system, you’ve got things under control!

USE YOUR TAX RETURN WISELY!
Everyone loves to treat his or her return as found money and splurge.  Resist the temptation to spend the money on a trip or big-ticket item and use it wisely. If you are currently enrolled in a debt management program, why not consider doubling up on your payments so you can reduce your debt in less time?

Investments are another wise choice.  Investing in tax deferred accounts such as a Roth IRA, or in pre-tax investment programs such as a 401(k) or a standard IRA can not only help you save for the future, but can also provide benefits at tax time. If you have children, consider opening a 529 plan on their behalf in your home state. Many states offer tax breaks to residents for contributions made by Dec. 31. The 529 plans are designed to help families save for future college costs — earnings and withdrawals are tax-free so long as they are used for qualified education expenses. Although you may receive tax benefits by investing in your own state's plan, you are able to invest in any state's 529 plan, so be sure to evaluate your options carefully.

If you owed money this year, or if you have a huge return coming, you may want to consider adjusting your withholding amount. The goal should be to break even. While getting a refund may seem like a good deal, you’ve basically been loaning the government money at zero interest.