tax tips — May 21, 2012

Good Advice You May Not Want to Hear

by Bob Williams

IRS deposit delaysSo you got your income tax return done and sent on time. Congratulations! You may be enjoying that nice refund about now. But before the joy of the moment overwhelms your memory, think back to those days before April 17, when you were fighting to get that return completed and sent in.

If you'd like to avoid the crazy confusion, the feeling of disorganization and, for some, that sense of impending doom, consider laying the groundwork now for next year's tax time. That's right, start now. Today. Or maybe this weekend. At any rate, any steps you take now can begin the process of smoothing out the Road to Taxville.

Here are a few of the things you can do right now that will keep those beads of sweat to a minimum in a year's time:

Store Your Return in a Safe Place -- Keep a paper copy of this year's newly filed tax return in your safe deposit box, in your home safe, or in your home files. Or, how about all three? Wherever you decide to store your return, make sure it's a place that's available and secure. No points if you squirrel your return away in a nook that's so secure, even YOU don't know where it is.

It's Time to Get Organized -- This is especially important if you itemize, and you found yourself awash in receipts at tax time. Find a place in your home where everyone can put their receipts and other financial paperwork during the year. It can be a file cabinet, it can be a shoebox. But if it's all in one location, you won't be scrambling to find your supporting paperwork when you sit down to work on next year's taxes.

Adjust Your Withholding -- Sure, it's nice getting a big refund, but wouldn't it be better to get a little more in your pocket every paycheck? Your withholding may be set too high, and that may be why you're getting a refund. You can use our handy Withholding Calculator to figure if you're having too much held back from your paycheck. Of course, this advice holds if you had a balance due to the IRS. Your withholding may be too low.

Check Your Paycheck -- This sort of goes hand-in-hand with the withholding step. Look over your paycheck to see that the amounts being taken out for benefits, if any, and other items are what they should be. If those amounts are out of line, contact your employer, or the accounting or human resource departments.

Work Out Your Deduction Game Plan -- If your deductions typically fall just a bit short of the amount that makes itemizing worthwhile, a little planning could make all the difference. Things like early or extra property tax, mortgage or loan payments could equal some tax savings, likewise planned donations or even some paid-off medical bills. Take a look at the Schedule A instructions (available here) for expenses you can deduct if you're itemizing -- then see if you can come up with a strategy that works for you.

Study Up on Your Tuition Payments -- Be forewarned: The American Opportunity Tax Credit for higher education expense is set to expire after 2012. That means it could be beneficial to pay 2013 tuition in 2012 to take full advantage of the credit, which is worth up to $2,500. Check out IRS Publication 970, Tax Benefits for Education.

Keep on Top of Changes -- You can stay ahead of the tax law curve by subscribing to the IRS' free tax tip service. The IRS also has IRS2Go, a mobile app for your phone. By reading the regularly distributed Tax Tips, you can watch for changes in taxes that could either help your current tax situation -- or give you a heads-up about a potential problem you'd want to avoid.

Gut Check: Is It Time for a Professional? -- Many times, as we get older, our tax landscape gets more complicated - kids in college, home repairs or improvements, retirement accounts, real estate holdings, or maybe you're taking care of your parents. All these can be really tricky to deal with, especially in a changing tax environment. Consider using a tax professional to help map out your tax landscape -- and be very honest with yourself. Remember, the money you save by doing your own taxes could evaporate very quickly if you miss a deduction, or have to pay a penalty because of a mistake on the return. Start looking now at the tax professionals in your area, so you don't have to do any "last-minute" shopping.

You can download the IRS tip sheet on How to Select a Tax Preparer from www.irs.gov.

The point with all these ideas is to erase your tax turmoil by spreading the work out over the course of the year. So whatever you can get done now, means smooth sailing next April.

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