How would you rate 2010? I give it 10 out of 10. My daughter turned two, my wife is pregnant with child number two, and I am extremely happy at my job. Additionally, my wife and I purchased our first home in a great neighborhood and love coming home to it every day. I can only hope that 2011 is just as great, if not better, than 2010.
And as January 1st approaches I would like to remind everyone to think about their tax situation for the year ahead. Will you be earning a bigger paycheck this year? Will you be able to itemize your deductions on your 2011 tax return? Are you planning on buying a house or starting a business? Are you getting married or having kids in 2011? These are just a few of the important questions you need to ask yourself in order to properly plan for the upcoming tax year. I’ve said it before and I’ll say it again: Getting a refund at the end of the year is like flushing money down the toilet. Ideally, you will owe nothing, and get nothing. Break even. It always amazes me how many people think this is foolish. They want bigger and bigger refunds each year and never realize the money they are missing out on.
The following are the 5 most important things to do at the beginning of 2011 to make sure you get the most out of 2011.
1. Fill out a new W-4: This is how your employer knows how much to withhold from your paycheck. If you are having too much taken out in 2010 you need to fill out a new one to reduce your withholdings. This basically means your paycheck will be higher!
2. Review major plans in 2011: Are you getting married? Having a child? Is a child graduating from college? Major events or changes can lead to big tax consequences/rewards so it is important to plan for them.
3. Decide if you need help filing your taxes: Not understanding the tax code can cost you a significant amount of money. Missed deductions and credits can be the difference between a small refund and owing thousands of dollars. And don’t think TurboTax or one of the other do-it-yourself software will make sure you file correctly. I’ve used a number of these products and each time there are errors that would have cost me hundreds of dollars. Taxes are extremely complex and only a tax professional (CPA, tax attorney, or enrolled agent) will get you the biggest savings.
4. Get organized: Many people start to prepare their taxes only to find they didn’t keep very good records or they can’t find important documents. Start a file labeled “2011 Taxes” and place anything and everything related to taxes in that folder. Make copies if you have too. If the IRS audits your tax return, you will need proof to back up any income or deductions. And believe me, the IRS agent won’t care what your situation is: no proof=no deduction.
5. Create an action plan: Whether it means paying off debt or achieving that big promotion at work, everyone needs a plan. More importantly, write your plans and goals on paper (with actual paper and pen!). Goals are more likely to be achieved when they are written down and the paper and pen method makes it as real as possible. Make sure you review your action plan on a regular basis to make sure you are following it or need to adjust it.
Be sure to consult a tax professional if you are unsure of what the tax consequences are of any changes to your situation.
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