Did you just wipe that sweat off your brow now that another tax season is coming to a close? It came down to that very moment where you looked at your accountant or turbo tax software, and said, “Please get me a refund”! Does this seem like a religious ritual you do every year during the spring hoping that some money gets back in your pocket? Wouldn’t it be great if next year didn’t have to be like this year? It can change if you look at doing these four things now by proactively planning your income taxes for all of 2011 even though tax time is a full year away.
- Review your withholdings – One of the first items to tackle is to do a projection of the income and deductions you think you will earn for the rest of the year in 2011. Since you have already withheld about a quarters worth of taxes from your paycheck and it’s likely your company has paid your annual bonus, now is a good time to really project out how much money to withhold from your paycheck for the rest of the year. If your deductions (i.e. mortgage interest, real estate taxes, charitable contributions, etc.) are in reasonable line with 2010 taxes, you can actually get close to figuring out exactly what you need to withhold to maximize your cash flow for the rest of the year. More importantly, you won’t have any surprises come 2012 when you prepare your 2011 taxes.
- Analyze your medical expenses – Since most taxpayers who work for medium to larger size companies have a Flexible Spending Account, now is the time to closely look at your overall medical expenses and take a guess on what you need to put away in your Flexible Spending Account for the rest of 2011 on a per paycheck basis. Although you can’t predict unexpected health items that may happen, you can get an excellent baseline on what to put in this account to maximize your pre-tax deduction.
- Assess your tracking system – When it comes to items such as non-cash charitable contributions, business expenses, and unreimbursed employee expenses, documentation is everything. I have use the neat receipts program for several years to electronically manage my receipts, but this is the time of the year to get an organized system in place so you don’t walk into your accountant’s office with a box of jumbled receipts next year. You should look through your tax return so you can see each category where deductions are allowed based upon your situation, and create an electronic or paper file to mimic that specific part of the tax return. The worst feeling in the world (like the one you may be going through now) is to rummage through your house looking for those receipts you were sure you didn’t throw away.
- Ask about federal and state tax credit programs – Every year there can be both federal and state (some states have no income tax) tax credit programs that may be available to for you to take advantage of to lower your income taxes. Sometimes you have to invest in these programs earlier in the year to lock in the credit or even get a better deal on the credit program. If you are a high wage earner or a business owner who earns a lot of net income, you will likely want to ask your financial advisor or CPA when you file your taxes what may be available now.
Take advantage of a little planning and preparation now, and a Hail Mary won’t be necessary when you file your taxes next March or April. Go to www.oxygenfinancial.net to request a consultation to figure out how to build a tax management strategy that is right for you in 2011.
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder oXYGen Financial, Inc.
oXYGen Financial, Inc. co-CEO Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice and Smart Money Moves to the X and Y Generation.
Phone 1.800.355.9318 or 770.777.0427
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