Tax Postmorten Will Ease Burden Of Filing Next Year

With the passage of April 17, we say adieu to another federal income tax season, right?

Well, not exactly.

Why not take some time to review your tax situation and make some small changes to simplify and minimize your taxes next year.

Refunds: Did you get a large refund? That’s your money the federal government holds for about a year, interest free.

Wouldn’t you rather have that money in your pocket? Or in the bank, earning interest?

If you routinely get a large refund, and your financial circumstances will not appreciably change this year, consider talking to your personnel department about reducing the amount of money that’s withheld from your paycheck.

Taxes owed: Did you owe a lot of tax this year? If you owe more than $500, you run the risk of having not only to pay taxes, but penalties as well. That’s because the IRS wants its money in a timely way. For many of us, that means through payroll withholding.

If you owed a lot of money this year, go to your personnel department and ask that your withholding be increased. If, for example, you owed $500 in taxes, ask payroll to increase your withholding by $10 a week ($10 x 52 weeks $520).

Investments: Are your investments as tax friendly as they can be?

For example, do your long-term investments (10 years or more) generate high dividends? Consider moving some of those into growth investments, such as growth stocks or growth stock mutual funds.

Growth stock investments increase in value as the value of the shares increases. But they don’t generate much in dividends.

Dividends are taxable the year you receive them, even if you reinvest them into the stock or mutual fund. This means many taxpayers must report “paper” gains on their investments, which generate additional taxes, even though they haven’t received the income yet.

Record keeping: Now that your taxes are done, let’s review your system.

Perhaps a receipt-filled shoebox is not the best filing system. Buy a file folder with multiple, labeled sleeves instead.

When you sit down to do your 1995 return, your receipts will already be organized.