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10 tax resolutions
It's the end of yet another
year, and even with all the other stuff going on it's time to make
a list of tax resolutions. They could save you some money:
1. Pay
deductible expenses by Dec. 31.
2. Get organized.
3. Incorporate
your business.
4. Adjust your
tax withholding.
5. Save for retirement.
6. Check your insurance
coverage.
7. Consolidate
debt.
8. Meet with your
attorney.
9. Meet with your
accountant.
10. Get your
financial plan back on track.
Pay
all your deductible expenses before year end.
And be sure to make the payments either with a check dated in 2002
or by credit card. If your state income tax payment is due in January,
pay it in December to secure the deduction this year. The same goes
for real
estate taxes, mortgage interest and charity.
If you still owe your accountant for last year's taxes, I'm sure
he'd appreciate his check by now, and he'll let you deduct it this
year. If your business reports its taxes on the cash basis of accounting,
prepay all that you can. Although 2003 tax rates will go down, it's
not by a lot, so you're better off with the deduction since tax
laws can be changed.
Get
organized.
It's been my experience that organized
clients pay less in taxes since they have good records. Go to
the office supply store, and buy yourself files for this year and
for next. Get your 2001 tax return and organize your files by the
major categories on the return. When you get done you'll have files
for wages, interest, capital gains, individual rental properties,
charity, mortgage interest, taxes, etc. In January, you'll start
receiving correspondence labeled "Important Tax Documents"
that you should put in the respective files together with your other
supporting documents. Keep these with your 2002 files, and start
out with a fresh set of folders for 2003 for the same categories.
And remember, even though it's a good idea to hold onto tax documentation,
you don't have to drown in paperwork. Check out this
story on which tax forms to keep and for how long.
Consider
incorporating.
If your business is not incorporated, you may want to consider the
advantages of incorporating in the new year. Not only does corporation
status give you shelter from some financial risks, you also will
have flexibility for saving on taxes. But the time to set up the
corporation is now so it will be in place at the beginning of the
year. If you wait until January to set up the new corporation, you
won't have a tax identification number or bank account for a few
weeks in January, and that starts to cut into your tax savings.
Check out this column on the tax
implications of a limited liability company vs. an S corporation,
as well this one explaining how incorporating
offers greater tax advantages than a partnership or sole proprietorship.
Adjust
your tax withholding.
Did you owe or get a big refund on your 2001 income taxes? The culprit
is an incorrect Form W-4, especially for working married couples.
Submit a new one ASAP to ensure correct
withholding taxes. The Internal Revenue Service has an easy-to-use
calculator
that tells you the number of allowances to claim. To use it
you should have a copy of your 2001 income tax form handy and estimates
of the same items for 2003.
Force
your retirement savings.
Another year has gone by and you haven't gotten any younger. You
could have made your 2002 IRA contributions in January of 2002,
but you've put it off until now. The good news is that you can still
make your 2002 contributions and get an early start on your 2003
amounts. You also may be pleasantly surprised to learn that the
contribution limits for 2002 are now $3,000, up from the historic
$2,000. If you or your spouse are over age 50, you each can make
up to $3,500 in IRA contributions; that means an eligible couple
can contribute $7,000 a year. If you're not in a pension plan at
work, consider a deductible
IRA that can save you 30 percent or more of what you contribute.
If you have a pension at work, you can contribute to a Roth
IRA and take out the money later tax-free. It's also the time
to up your 2003 elective contributions to your 401(k)
plan.
Do an
insurance checkup.
With all that we insure, nobody wants to think about more insurance.
But it's too late to add insurance when the need arises. One of
the hottest selling products is long-term
care insurance. LTC insurance provides for your care when you're
old and unable to independently take care of yourself. The insurance
can provide for nursing-home care, but it can also give you a stipend
for nursing care in your home. This provision may allow you to remain
in the comfort of your home rather than having to go into an institution.
Part of the cost of the premiums are tax deductible as medical expenses
or if self-employed as an adjustment to gross income.
Consolidate
debt.
Now that you've racked up more debt it's time to consider consolidating
outstanding debt on credit cards, car loans and other personal
debts into a home equity loan. Interest paid on these borrowings
is generally not deductible (unless it's business related), while
interest on home equity loans is generally deductible.
Meet
with your attorney.
Your attorney should review your wills and other documents to determine
that they are still in accordance with your wishes and that they
conform to the impending repeal of the estate
tax. If you haven't done your wills and you have children or
property, then your attorney should advise you of the risks that
you are taking and should get working on these indispensable documents.
If you're in business, your attorney should also update your corporate
minute books to reflect the business activity and decisions for
the year or years since the minutes were last done.
Meet
with your accountant.
Do this ASAP. The closer to April 15, the busier your accountant
gets. And just like anybody who has too much work, some of it doesn't
get his full attention. Especially when he starts working 12-to-14-hour
days. If you visit your accountant and he looks like he's overwhelmed,
consider taking an extension of time to file your income tax return
so that you both have opportunity to adequately review your taxes.
And if you're considering hiring an accountant or tax preparer for
the first time, this story
offers guidance on finding a tax pro who fits your filing needs.
Get
your financial plan back on track.
Everyone has taken a beating in the stock market recently, but that
doesn't mean that the market is not right for you. The stock market
in the proper
mix with other sound investments will provide you the best financial
security over the long run. Meet with your broker, accountant or
financial
planner, and chart a plan that will fill your lifetime needs,
such as college education and early retirement.
Want even more tax planning and saving suggestions?
Check out the Tax
Talk archives for additional advice.
Best wishes for a prosperous new year.
-- Posted: Dec. 27, 2002
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