Steps to Take NOW to Prepare for Tax Season
Steps to take NOW to prepare for tax season
by George Rariden
Many people start thinking about tax season in January. However, there are several steps you can take by the end of December that may have a significant impact on your 2009 tax liability.
The first thing to do right now is to create a “Dummy Tax Return.” I call it that not because you are doing the calculations, but because the calculations are, in some cases, estimated. The key is to look at all of the various thresholds that exist which either allow or minimize deductions. In our office, we work on these things from November through the holidays for our clients who need it.
It is important to do this exercise now because, some deductions are only available if the transaction occurs before the end of the year. Here are some examples:
- Charitable deductions: Make sure you have receipts or a letter of acknowledgement from the organization. If a letter of acknowledgement is required, the letter should be dated close to the date in which you make the donation. “Contemporaneous” is the language the IRS uses.
- If you are participating in a salary deferral retirement plan, remember, the deferrals must be deducted from a pay period in 2009. If you don’t have the flexibility to adjust your deferrals on short notice, you can use a Traditional IRA. Just make sure you don’t exceed the thresholds for its deductibility.
- A Traditional IRA is the type of account which can receive contributions up to the due date of your tax return. You can file as early as you wish, or up to the deadline of extensions and still claim the deduction. Just make sure your contribution is credited in the IRA by April 15th.
- Itemized deductions! If each your itemized deductions are close to the “free” standard deduction amount, try loading up those property tax, medical expense, and miscellaneous expense items every OTHER tax year. For example, pay 2009 real estate taxes in January of 2010 and then pay 2010 real estate taxes at the normal time in November of 2010. If the itemized deductions minus the standard deduction multiplied by your top tax rate exceed the cost of waiting to pay the 2009 property tax in January, you’ve saved money!
With many feeling the pinch from our recent economic woes, you might have experienced a year with unusually low income. This would be a reason to defer the payment of deductible transactions until next year. On the other hand, you might want to recognize income before year-end if you anticipate your 2010 income to get back to normal levels. Bonuses, stock sales, and receipt of taxable payments completed in 2009 might be to your advantage if you are temporarily in a lower tax bracket.
Most important, make sure you have accurate and complete records! Remember the government needs the money! It is diligently searching for all of the careless filers. If you use a professional tax preparer, well organized records make it easier for us to spot potential tax savings for you.
If you like these ideas and need a competent advisor, call me. I will be happy to work with you.
George Rariden
Accounting, Tax Planning, Wealth Management
7523 Aloma Ave., Suite 106
Winter Park, FL 32792
407-671-8385
george.rariden@gmail.com
You can follow any responses to this entry through the RSS 2.0 feed.