Tax season may be over, but don’t let that stop you from plotting and planning ways of legitimately keeping tax dollars in your pocket. So here are a few tips to help you through the rest of the year.
Change your withholdings – If you got a big tax refund, you are basically lending the government interest-free money all year. Take a bigger net pay check instead. On Form W4 (available through your personnel department or at www.irs.gov) increase the number of exemptions you claim. Do the worksheet on the form or ask your tax pro for help. Some people like the forced savings. Maybe you can train yourself to put the excess into a savings account instead.
Set up a tax file for the current year if you have not done so already. Every transaction with tax implications should find its way into that file during the course of the year. You’ll be glad you did when it comes time to compile your data early next year. Instead of agonizing over finding receipts and cancelled checks, you can smile as you pick up and file and head out to your tax pro.
Close out your prior year tax file. Store a copy of your tax return, all bank statements and back up documentation to support the income and deductions you claimed together in a safe place. In the event of audit, you will be ready.
If you were unable to pay the full amount you owed with your tax return but are able to do so within six months, don’t bother with the expense of setting up an installment agreement (Form 9465). Simply make payments as you are able. Make sure you include the tax year, form number, and your Social Security number on the memo line of the checks you write.
If the balance owing will take more than 6 months to repay, then complete Form 9465 and send it to the IRS service center where you filed your tax return without delay. There is a set up fee but the amount is lower if you elect an auto-debit from your bank account.
If your refund was snatched away because your spouse owed certain debts like back child support, student loans, etc, file Form 8379 Injured Spouse Allocation. It may not be too late to get your share of the refund back. On this form you essentially separate your income and expenses from your spouse’s to determine how much of the refund belongs to you. Sign and mail the form to the service center where you filed your tax return. It takes approximately 11 weeks to process.
Work that HSA. For 2011, you are allowed to contribute $3,050 for single and $6,150 family coverage subject to some limitations. So if you are anticipating a large medical bill, make sure you don’t just pay it. Fund the HSA then pay the bill from that account to maximize your contribution.
If you use your vehicle for business purposes, make sure you have recorded your beginning odometer reading as of January 1 and stored the information in your current year tax file. If you did not do that, attempt to extrapolate the information now. Make a note to self to record the ending odometer reading on December 31.
If your financial situation changed dramatically this year as compared to last, or if you are entering a new phase of life – perhaps you have become a homeowner or have lost your home to foreclosure or short sale, perhaps you are getting married or divorced – sit down with your tax pro for a tax planning session. There’s nothing worse than being surprised with a big bill come April 15, especially if there were ways to legitimately avoid it.
Keep up with tax law changes and stay tuned to your tax pro. Something new gets passed every 20 minutes it seems. The goal is to maximize your deductions and minimize your taxable income. All things considered, midyear tax planning session may cost a lot less than you think.
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