How To Get The Most Out Of Your Taxes
April 15th will arrive before you know it. Which leads to the question; what is the most simple and efficient way to tackle the tax process this year? Accountants are helpful, but you yourself can take charge of the process by ensuring you have all your bases covered in terms of tax paperwork. Here are the five most important steps to get off to a running start:
1. Create a master checklist. The list should come from reviewing your 2009 returns and looking for items like W2 forms, bank statements, HSA account information, energy saving home improvements, tuition, property taxes, child care deductions and charitable deductions.
2. Put all of your tax receipts in one place. A shoebox or large envelope marked "2010 Taxes" works fine. Keep it next to your daily mail pile and place the items you need for your taxes inside as soon as they are received. There is nothing worse than having to hunt for those papers at the last minute.
3. Maximize your investments. Tax time is an important time to review your investments. If you are still working, start with your retirement accounts. Most people think if they are in their 50s or 60s it is too late. On the contrary, this is a crucial time to continue investing the maximum contribution. If you are 50 or older, there is a special catch up contribution that should also be taken advantage of. For example, In a traditional IRA, you can invest an extra $1,000 and in a 401(k) plan you can increase your contribution by $5,500. Consider dividend paying stocks. The dividend currently has a more favorable tax treatment than bonds (capitals gains rate versus ordinary income). Plus, owning some stocks will help you keep up with inflation. Many high quality dividend paying stocks are yielding more than treasury bonds.
4. Maximize deductions. Search for all allowable deductions, including those you may have overlooked in the past, i.e. state and local sales tax deductions, student loan interest, medical deductions, tuition and school expenses, energy-saving home improvements, home-office expenses (for the self-employed) and even tax preparation fees.
5. Call your accountant. You are now ready to call your accountant from a position of power! Best to call sooner than later to ensure that you are first in line. The earlier you get your taxes into the IRS, the earlier the good (or bad) news will get to you!
About the Author: Catherine Avery founded CAIM LLC in 2007 after 20 years of successfully managing client assets at major institutions. She has been widely cited as an expert portfolio manager in Financial Planning Magazine, The New York Times, Consumer's Digest and Fox Business channel.