End of the Year Tax Tips

With 2006 winding up, there are a few people that are beginning to consider their tax situation. I know that a lot of people wait until March to even consider their taxes, but the wise are prepared well in advance. I advise that you use the month of December to gather and organize your receipts and other financial documents. That way, when you receive your W-2’s and other tax documents, you will be ready to file your taxes.

It doesn’t matter if you prepare your own federal and state taxes or if you use a professional, you will still need the same documentation. One thing that we often wait on is our W-2’s and 1099MISC’s. Be especially sure that you report and attach all of this information. If you don’t, you will face late fees and penalties. You should receive your forms before February 15. If you don’t, contact your employer.

Americans lose millions of dollars each year from tax deductions that they were entitled to but did not claim. I recently had someone tell me that their tax preparer was excellent, despite the fact that he wouldn’t let her claim one of the most basic and easiest deductions. A professional tax preparer and tax software will prompt a taxpayer to claim tax deductions that they qualify for. However, many people miss these deductions. You should take the time to research the most frequently overlooked tax deductions and credits to determine what you qualify for.

Do you know what to do if you can’t pay the total amount of taxes you owe? Most people make the mistake of not filing a tax return at all. They think that this will stall the payment of the taxes. But all it really does is make the situation worse. You should file an extension deadline. You will still owe the estimated amount of taxes on the tax deadline. You will be charged late fees and penalties on tax payments not received in time. The longer you ignore the due date, the larger the penalties and fees.

It is important to keep current with changes in the tax law. The IRS and federal and state governments change tax laws every year. You should do a bit of research to find out if any of the tax law changes affect your tax returns. For example, several popular tax breaks expired last year and probably won’t be available for this year. Keep up to date on changes in tax law.

Start your preparations early. If you take it step by step over a few months, the whole process won’t be such a large task. By starting to gather your receipts this month, you will be prepared for your taxes in April. You will also be able to complete any transactions that are necessary before December, such as charitable donations and business transactions.

Staying organized throughout the year will make your tax time a breeze. Use accordion folders to organize receipts and documents. I find that accounting software, such as Quicken or Microsoft Money, makes tax time quite easy. You can designate your spending to tax categories and then just pull a report. Or you could keep a log book that you write your tax deductible spending in throughout the year. If you do, you won’t be sifting through receipts at the end of the year. You just total things up and move on to the next task. But remember to keep those receipts.

If you stay on top of your tax situation all year long, you will find that you can avoid that midnight rush in April. You are ready to file weeks ahead of everyone else.

Martin Lukac