Ten Tips To Simplify Tax Preparation
Want to get a head start on your taxes? Many of the same tools that make banking easier can also help make filing your taxes simpler and faster. Take advantage of these tips now (just be sure to talk to your tax advisor for details) and enjoy the benefits come tax season.
1. Get Organized: Keep receipts and statements together, putting the information in folders for easy access. If you're not an organizer, just putting receipts in a designated envelope will put you a step ahead.
2. Use your computer: Use financial software to track your expenses, itemize your deductions, and efficiently analyze the information to determine where you can increase deductions or adjust your withholdings.
3. Bank online: Ask your financial institution about participating in their online banking program. You can manage your account efficiently, check balances and deposits, pay bills, and keep track of accounts. If you set up expense categories in your financial software, when you download your bank statements your deductions will automatically be sorted by category. And, if you file your tax return electronically, online banking will get you that refund quickly.
4. Identify your deductions: Review your checkbook to identify any deductions you might have overlooked for 2006. Don't forget contributions to charities, stock market losses, and savings in tax-friendly retirement accounts can all be deducted from your tax bill.
5. Check your mortgage and interest deductions: If you refinanced in 2006, you may find your lower interest rate and payments have resulted in a lower deduction for interest payments. But don't forget your closing costs are deductible. Ask a financial expert for help determining the best strategy.
6. Take advantage of tax deferred income: An Individual Retirement Account (IRA) or Roth IRA can result in substantial tax savings. You can contribute as much as $4,000 ($5,000 if you're over age 50) in 2006. With a traditional IRA, you'll get immediate tax savings by deferring taxes on the income until you are retired - when your taxable income is likely to be lower. With a Roth IRA, you won't be able to deduct contributions now, but when it comes time to withdraw that money, you won't owe any income tax on the earnings - provided the Roth has been open for five years. Ask your banker for detailed information.
7. Consider Savings Accounts and Short-term CDs: You may be able to reduce your taxable income by putting funds into short term CDs or an IRA CD. College savings accounts and medical savings accounts also allow you to defer tax payments until you actually use the savings. In the meantime, you'll earn interest and save tax dollars. Check into current CD rates at your bank for the best deal.
8. Change your withholding: Although some people consider getting a tax refund "found money," it really means you've been letting the government use your money interest-free. Don't give the government an interest-free loan. Adjust your withholding so approximately 90 percent of what you think you'll owe in taxes is withheld from your paycheck. Put the increase in your take home pay to work for you in a savings account or CD.
9. E-File this year: Take advantage of the IRS's e-file program. You'll receive any refund in half the time compared to a return filed on paper - even faster if you have your refund deposited directly into your bank account.
10. Get free help: Talk to the pros at your banking institution. Some banks offer tax advice. Ask if yours does.
Bonus tip, start now. taking these steps will make filing your 2006 taxes easier, faster and more convenient.
This article was submitted by Van Canada, Riverside Bank President in Volusia County.