Money Matters – Taxing Times: Planning For 2011
BOSTON (CBS) – This is a good time to start your tax planning for this year. Set up a filing system. Nothing elaborate needed here. I use a folder system where I label folders contributions, real estate taxes, estimated taxes, medical expenses, etc. You could use an envelope system as well.
Makes finding the tax information easy for you do need to keep all of the relevant material to back up any deductions you do want to take. Canceled, imaged or substitute checks, mileage logs for your trips for charity or medical reasons, receipts, credit card bills.
Normally, tax records should be kept for three years from your filing date, which is the period that the IRS has to audit your return, but most experts will tell you to keep them 6-7 years. Documents relating to the purchase and basis of your home, stock transactions, business or rental property should be kept in separate files until you sell the asset and then the information is filed with your tax return.
IRAs and pension information should be kept forever or until you have spent all of the money!
If you pay estimated taxes mark your calendar with the due dates. Consider using a personal finance software package such as Quicken for your checking account. You can easily print out reports at the end of the year for your taxes.
Did you miss out on any of the tax credits or deductions last year because you made too much money?
Review your retirement planning. Those dollars that go into your plan (401(k) plan, 403(b) and 457 (the state’s deferred comp) go in pre-tax.
Can you increase your contribution to your retirement plan and lower your taxable income which may put you in a lower tax bracket. With a little bit of planning on your part you might be eligible this year and the bonus would be a larger retirement pot!
Are you planning to get married this year? Are you going to change your name? The trend is for both men and women to change their name. If you do, make sure the Social Security Administration and the IRS both know. And make sure they have your new address as well.
Same advice if you are getting divorced and change your name this year. Be sure the IRS and the SSA know your new name and where you are living.
The IRS uses the Postal Service’s change of address files to update taxpayer addresses, but you may want to notify the IRS directly. And be sure to notify your employer of the change of address and name.
One more thing: Do you want to contribute to an IRA this year? Start making the contributions now so that you don’t have to scramble to come up with a lump sum next spring.
Does your company offer the new Roth 401(k) plan? Here you contribute after tax dollars to your retirement account and in retirement are allowed to withdraw the dollars free of federal income taxes. Sounds like a good deal and it may be, but the older you are the less attractive it is and the better deal would be contributing dollars pre-tax to your account.