Works for Me Wednesday – Planning for Tax Season

As the saying goes, “Nothing is certain but death and taxes”. As the year comes to an end, we all have to prepare to file our taxes.

Here are some things that you can do to make tax season a little bit easier.

• Make sure that you make any charitable contributions (both cash and non-cash) by 12/31 to count for the 2008 tax season. I wouldn’t recommend waiting until 12/31 to donate to the Salvation Army, because the drop-off line gets really long (wonder how I know that, huh?).

• You also need to make any contributions to your 529 plan before the end of the year (you have until 4/15 to contribute to your IRA). If you don’t contribute to your own state’s 529 plan, it’s probably not deductible on your state taxes, so it doesn’t matter when you contribute.

• If you itemize, pay all tax deductible bills before the end of the year. I also usually schedule my January mortgage payment for a day or two before the end of the year to make sure that it is processed as a December payment. Also, since my birthday is in January, I usually get my car registration (personal property taxes) at the end of December. I pay it before the end of the year to claim it on the this year’s tax bill. If your property taxes are due early in the year, you may want to pay them before the end of this year, if possible.

• Make sure that you use up all your 2008 Flexible Spending Account (FSA) money before the end of the year (and claim it by the deadline for your plan). An FSA, is a “use it or lose it” plan, so if you have money left over at the end of the year, you lose it. If you don’t have an FSA, you might want to look into it for next year. It’s basically a plan where you can contribute money pre-tax to an account where you use the money to pay for medical expenses. Since you’ll lose it, if you don’t use it, I’m usually conservative in how much I contribute, but I always add known expenses like well-child visit copays, my contact lenses, etc.

• If you are going to have a large capital gain (ha! ha! this year), then you might want to sell some loser stocks to offset the gains.

• Gather all your receipts. If you did any online surveys or had any blog income, you need to claim that money as income, even if you don’t get a 1099 form from the company. You can, however, claim any expenses that you paid to earn that money, though, like a percentage of your internet bill, advertising, etc.

• Keep track of your final tax result (balance due or refund). For the past 5 years or so, I’ve kept an Excel spreadsheet where I track what my tax refund (or amount owed) is expected to be at any time. Although my husband’s salary and tax contributions are steady, I was working from home, and I made different amounts each month with no tax deductions. So, I wanted to make sure that we weren’t going to owe a lot of money at the end of the year.

That’s what works for me! For more ideas, visit Rocks in my Dryer.