Tuesday Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.
This is not a post about making a tax resolution that won’t be kept. I want to make a few simple suggestions that could save you grief a year from now.
- Check your withholding. If you have been coming up with a balance due when your taxes are prepared, this might be the solution to that problem. No more possible deductions? Then you might have to face the fact that a little more needs to come out of your pay. And, whether or not you change your W-4, keep an eye on your pay stub. Federal withholding has increased this year since the Making Work Pay Credit ended. Did yours? Then there could be a data entry error or computer glitch that changes your withholding accidentally. Check a pay stub early in the year and anytime the check doesn’t seem right. The longer it takes to catch a withholding error, the harder it is to fix it.
- Plan for changes. Retiring? Buying a house? Becoming an empty nester? All of these could impact your taxes. Talk to your preparer or do some research to find out how your taxes could change and what you can do to take advantage or plan for the change.
- Emergencies can affect your taxes. Lose your job and need to draw from a retirement plan or draw unemployment? A health issue that changes your income? Find out what is taxable. Please understand that the withholding that comes out of your retirement plan or unemployment doesn’t “cover” the taxes. Your taxes are based on all your income, not just the emergency money. Their withholding is generally a set percentage (unless you specify otherwise) and that may not be enough in your situation.
- All tax info is not the same. He may be the best barber in the world but that doesn’t mean he knows anything about taxes. Don’t disregard the advice you receive from non-tax professionals. But do check out what they are saying for the full story.
- All returns are not created equal. It’s tempting to compare your return to what you hear from co-workers and friends. But a single deduction or withholding set a little differently can be the difference between your refund and her balance due.
- There is no magic deduction/credit. You are entitled to all the deductions/credits you legally qualify for, nothing more. Sometimes the only thing you can do is pay/pre-pay the tax.
Take control of your taxes. If you don’t understand something, ask your preparer or do the research. You might not like the answer but it sure beats wondering if there is something else you could do. Wondering never solves the problem.
Oh, and speaking about controlling your taxes, the Utica, N.Y. Observer-Dispatch reports that Alex Michael John Tirado and his twin sister Alena Lucinda Tirado were Utica’s first New Year’s babies. It certainly was a thrill for their proud parents.
But the story did not contain a quote from their tax adviser, who would have said, ‘What lousy tax planning!’
If the kids had been born just 23 minutes earlier, their proud parents wouldn’t have received all the press attention. But they would have two $3,650 dependency exemptions on their 2010 tax return – worth almost $1,100 in the 15 percent tax bracket – more if their income is higher. They would have also received two child tax credits, at $1,000 per child. That’s a $2,000 savings right off the tax bill.
Sure, the parents will get the exemptions and credits in 2011. But they could have had them for 2010, too!
One wonders whether mom and dad will think, when they are filing their 2010 return, “Wow, with a little tax planning, we could have saved more than $3,000.”
Maybe Bradley and Melinda Maple had a better tax adviser. According to Local 6 News in Marion, Ill., Melinda gave birth to Olivia, Khloe, and Jackson – triplets – on New Year’s Eve. Now THAT’S good tax planning.
Keep that in mind when you’re making your April Fool’s Day plans. Some tax planning has to be done nine months in advance.
Hope your tax season is pleasant.
Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.