Tax season may be over, but don’t let that stop you from plotting and planning on ways of legitimately keeping more tax dollars in your pocket.
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Here are a few tips to help you through the rest of the year.
1.Change your withholdings. If you got a big tax refund you are basically lending the government interest-free money all year. Take a bigger net pay check instead. On Form W4 (available through your personnel department or here) increase the number of exemptions you claim. Do the worksheet on the form or ask your tax pro for help. Some people like the forced savings; maybe you can train yourself to put the excess into a savings account instead.
2. Set up a tax file for the current year if you haven't already. Every transaction made throughout the year with tax implications should find its way into that file. You’ll be glad you did when it comes time to compile your data early next year. Instead of agonizing over finding receipts and cancelled checks, you can smile as you pick up the file and head to your tax pro.
3. Close out your prior year tax file. Store a copy of your tax return, all bank statements and back-up documentation that support the income and deductions you claimed in one safe place. In the event of audit, you will be ready.
4. If you were unable to pay the full amount you owed with your tax return but are able to do so within six months, don’t bother with the expense of setting up an installment agreement (Form 9465). Simply make payments as you are able. When making payments, be sure to include the tax year, form number, and your Social Security number on the memo line of the checks.
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5. If the balance you owe will take more than six months to repay, complete Form 9465 and send it to the IRS service center where you filed your tax return without delay. There is a set-up fee, but the amount is lower if you elect an auto debit from your bank account.
6. If your refund was snatched away because your spouse owed certain debts like back child support or student loans, file Form 8379 Injured Spouse Allocation. It may not be too late to get your share of the refund back. On this form you essentially separate your income and expenses from your spouses to determine how much of the refund belongs to you. Sign and mail the form to the service center where you filed your tax return. It takes approximately 11 weeks to process.
7. Work that HSA. For 2011 you are allowed to contribute $3,050 for single and $6,150 for family coverage (subject to some limitations) to health savings accounts. So if you are anticipating a large medical bill, make sure you don’t just pay it, fund the HSA then pay the bill from that account to maximize your contribution.
8. If you use your vehicle for business purposes, make sure you have recorded your beginning odometer reading as of Jan.1 and stored the information in your current year tax file. If you did not do that, attempt to extrapolate the information now and be sure to make a note to record the ending odometer reading on Dec. 31.
9. If your financial situation changed dramatically this year compared to last, or if you are entering a new phase of life (becoming a homeowner, getting married/divorced, etc...) sit down with your tax pro for a tax planning session. There’s nothing worse than being surprised with a big bill come April 15, especially if there were ways to legitimately avoid it.
10. Keep up with tax law changes and stay tuned to your tax pro. It seems as if Congress passes a new law every 20 minutes and it's hard to keep up. The goal is to maximize your deductions and minimize your taxable income. All things considered, mid-year tax planning session may cost a lot less than you think.
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know,” available at all major booksellers. Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.