Am I done with taxes after April 15?
You’ve filed your taxes for last year. You won’t have to worry about this stuff again for at least another 10 months, right? WRONG! In fact, now is the perfect time to review your tax information for 2009. Whether you paid a tax balance due or are receiving a refund, I hope your tax advisor explained all the good AND bad financial decisions you made last year and how they affected your federal tax return. Having worked these first 3 months of the new tax year, it is now a perfect time to strategize the management of your taxes that will be due next April. The world has changed dramatically over the last two years; tax management, as well as credit and cash management, is now more than ever before, a major part of your financial life.
Running your life is like running a home-based business. Tax strategies are a part of good financial planning and are necessary in order to maximize disposable income throughout the year AND minimize taxes due by next April 15. Similarly, careful planning and review of payroll withholdings or, where appropriate, quarterly estimated tax payments, in April, June, September, and next January are very useful exercises in taking control of your finances, and your life. Unless you SPECIFICALLY plan to over-withhold estimated income taxes during the year, projecting what your taxable income will be WITH adjustments for tax-significant financial decisions, might offer greater rewards than you think. A short list includes contributions toward education/health/retirement plans, distributions from pensions/annuities, work-related moving expenses, business expenses related to trade or business, and, if appropriate, one-half any self-employment tax. Changes in your filing status and how many personal exemptions will be claimed as of December 31 are also important considerations.
A quick rule-of-thumb is to understand WHY your federal tax return has a tax balance owed or a refund due. Did you plan for this result? One approach to tax planning is to have all your payroll withholdings and/or estimated quarterly payments equal calculated taxes you owe (your tax liability) on your federal return. Excluding special one-time situations like buying your first house or large IRA distributions and special refundable credits like Earned Income and Child Tax Credits, a large refund or tax balance due are tax outcomes you need to carefully investigate and, especially if unexpected, adjust for as part of your tax strategies in this current tax year.