Spring Cleaning and Taxes

So your taxes are filed, (they are, aren’t they? or you filed an extension). What now?

Well I hope you had a refund, but if you had a balance due this year, take this opportunity to start your organizing for next year and doing some tax planning now. You can very rarely impact your tax situation after December 31st of the tax year, so in keeping with the season, do some spring cleaning and archive your 2009 documents and organize folders for the documents that you will need when you talk with your tax professional in 2011. Consider spending one of your money dates going over all the items that you jotted down while you were talking to your tax professional. You know, all those items that you hadn’t kept any documentation for, but which you could have made a valid claim if you had. Also, think about whatever life changes you expect to occur this year that may impact your tax situation either positively or negatively so that you may take defensive action to try to make it as positive as possible.

If you have a new child in 2010, you will be eligible for the $1000 child tax credit. If your child turned 16 in 2009 however, you will not be able to claim the child tax credit in 2010, so plan for the loss of that $1000 credit. Change your W4 to reflect your current situation, so that you do not have an unpleasant surprise when you go to prepare your taxes.

The better records you keep, the better chance you have of taking advantage of all the tax deductions that are legally available. I know, last year your tax professional said not to bother to keep your medical receipts, because you couldn’t itemize, or it was more advantageous for you to claim the standard deduction, but who knows, you may have enough to make a claim this year… and so it is with many items. Your tax situation is generally dynamic, your life events change, your life stages change, congress changes laws, so if you are expecting the same refund that you received last year, and your child turned 16 last year as mentioned above, it may not be possible without some planning.

Yet, for 2009, even if you couldn’t itemize you could still increase your standard deduction if you paid property taxes, or if you had purchased a new car after February 16th, 2009, (sales tax amount increased your standard deduction).

Keep track of your charitable contributions, and insist that you receive a receipt from the charity when you make your donation. If your donation is worth more that $5000, you will need to have it appraised, and keep that dated documentation. Churches will give you a receipt if you ask.

If you claim mileage for your business, medical miles, or volunteer miles, keep a log of your miles, location and purpose of the trip. Note your mileage on Jan1 and Dec 31. Also keep any documentation where a 3rd party validates your mileage, e.g. at an oil change, or when you take your car in for repair. If you claim the actual operating expenses for your business – keep track of all those items which include repair and maintenance (e.g. gasoline, oil, tires, car detailing, etc.), registration, inspections, parking and tolls.

You can claim the sales tax on your purchases if you itemize. Does that mean that you have to keep track of all your receipts, well no, you are allowed a calculated amount based on your income, and the sales tax rate of your state, called a safe harbor amount. You are also allowed to add to that amount the sales tax from vehicle purchases (including cars, boats, motor-bikes etc.) and home building materials. However, if you made large purchases on credit it is possible that your sales tax deduction could actually be more than the calculated amount – in this case you would have to track the sales tax on all your purchases, but the effort may be worth it.

If you are a teacher, keep track of the items that you purchased for your class – you can claim up to $250, but you must keep your receipts.

If your child is in college, and you are eligible for the American Opportunity Credit, keep all the receipts for books purchased and equipment purchased (including a computer). Also keep track of the actual amount of tuition that you pay, so you can validate the information that the school sends to you. If your numbers do not match the school’s numbers – contact them early to find out why.

Your tax-file will be different from everyone else’s – so take a cue from your 2009’s taxes and adjust as necessary. Please drop me a line and tell me how you organize for tax season.
"No matter who you are, making informed decisions about what you do with your money, will help build a more stable financial future for you and your family." Alan Greenspan