Tax Time Tips

Ray’s Take: It’s that time of year when many people find themselves scrambling through file cabinets, sorting through stacks of papers and gathering receipts in preparation for filing their yearly tax return. If you are unhappy with the lack of organization in your tax preparation, that could be your resolution for the coming year.

 

In a perfect world, your refund should be minimal, if you get one at all. Your personal situation will determine how accurately you can calculate your total tax liability for the year.

 

If you estimate your refund to be substantial, you may be over-withholding (giving the IRS an interest-free loan and missing out on last year’s market gains). If you are overpaying, the easiest correction is to complete a new W-4 form through your employer. If you’d like to get some extra money back each paycheck, increase the number of withholding allowances you claim.

 

If your refund is more reasonable in size, you are right on track. But don’t run out and spend it all in one place. Create a savings/spending “contract” with yourself. Commit to a fixed percent of certain windfalls (bonus, tax refund, etc.) that must be saved and the rest you can spend guilt-free.

 

It’s important to remember that the personal exemption, under the new tax bill, will disappear starting with 2018 taxes, but it still operates for your 2017 taxes according to the number of withholding allowances you claimed on your W-4 form.

 

And don’t wait until the last minute to file your return. This can set you up for a late-filing penalty of up to 5 percent of the amount due every month. Avoid the common mistake of thinking that getting an extension means that you don’t have to pay your tax bill in April; you will still owe interest and a late-payment penalty.

 

Dana’s Take: If you had a toothache, would you pull your own tooth? Unlikely. So why do non-accountants file their own taxes?

 

When I was single, I filed my own taxes. I didn’t know that emptying my 401(k) to buy a used Honda Civic was a big no-no. Well, the IRS took their sweet time to discover my error. The penalties and interest they charged me totaled more than the cost of the car.

 

Now, I pay a dentist to pull teeth and an accountant to file my taxes.

 

I know that CPAs charge a lot of money. But not only will they save you penalties and jail time, a CPA will provide you with organizing tools to make your job, and theirs, much easier. Most everything is handled via email.

 

I remember my father sitting at his desk preparing our taxes, looking miserable and overwhelmed. If you can afford it, give yourself a break and hire a CPA. He or she might even save you some money.

 

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