Do The Unthinkable: Start Now To Prepare For Next Tax Season
Taxes. For me they rank up there with colonoscopies and root canals. At least those two don’t happen every year. So I wait until the last moment, usually around March, and reluctantly rummage through kitchen drawers, my wallet, under the car seat, and unmarked folders for all my receipts and records and documents to send off to my CPA. Believe me I’m not very organized. Just ask my wife.
The experts say now is the time to start preparing for next tax season. Actually, it should really have begun on January 1, 2010, but let’s not get carried away. They say procrastination may wind up costing time and money. Here are some ways to get started:
- Start organizing your tax records. What should you keep? Anything and everything that proves income and expenses.
- Keep all tax related materials in the same location so you don’t have to hunt all over and gather them together come April 15th.
- Adjust your withholding on your W-4. Ideally, you should adjust it to maximize your earnings, which in turn minimizes your refund or payment. The closer you can get to zero owed the better.
CPA and former president of the Oklahoma Society of CPAs Jeff Frable says it’s never too early to begin planning. He adds a few more ways to make filing taxes next year less painful:
- Take a look at your YTD earnings and withholdings and multiply by two. Comparing that to your 2009 return should give you a pretty good idea whether your W-4 withholdings should be increased or decreased for the remaining six months of the year.
- If you want to reduce taxable income by deferring income into a retirement plan, it’s best to do it now, instead of December when you realize you have to.
- Plan and budget now to make real estate payments and charitable contributions by the end of the year. That way you can build it into your budget so it doesn’t become a financial strain during the expensive holiday season.
Frable also predicts tax planning will be even more difficult this year as the Bush tax cuts of 2001 and 2003 are set to expire at the end of 2010. He says:
There has been much speculation about what might happen to tax rates, but nothing has been settled yet. Once changes are made/announced, it will be easier to react if some planning has already been done than to start from scratch. Usually, the goal is to reduce income, but this year may be different. Someone may actually want to report MORE income and tax it at a lower rate than tax it at a higher rate next year (i.e., 2011).
If you’re like me, you may have a few important questions. If so, call a CPA. And by starting your tax planning now, it’s one less thing to worry about during the holiday season. Or, if you’re like me, the month before the tax deadline.