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*The Holidays are finally here and taxes are probably the last thing on your mind; but, there are plenty of tax savings to be had, this last month of 2006. Over the next month, I'm giving you a "Step by Step," (Whitney Houston, 1996, Preacher’s Wife Soundtrack), guide on those last-minute tax tips. You MUST get these done before December 31st, or else you can't take advantage of them on your 2006 tax return.
Week 1, December 3-9
Step 1: Find a Tax Preparer
Talk it over with your spouse, ask friends for referrals, or look online and interview a few accountants. A good accountant will not only help you with your current taxes, but will also be able to help you with past tax debts and issues. Make sure your accountant works with a good bookkeeper who can enter your receipts into a system like Quick Books or Quicken. These systems make it easier to create financial statements and allow you to track your income and expenses. Also, keep an eye out for accountants specializing in your particular industry.
Step 2: Get Your Old Tax Returns
The past does repeat itself. Looking at old tax returns can help you come up with what your situation will look like for 2006. Create your "pro-forma" tax return (or ask the tax preparer to do so). This can help you see if you will owe money, or if you are due a refund. Here's how:
1. 2005 Tax Return - Use this tax return as your guide for the type of information you need to gather to calculate your 2006 income and deductions.
2. 2006 Pay Stubs - Gather your most current pay stubs to see how much you will make for the year, and how much you have paid in federal and state taxes.
3. Side Business or Real Estate Income and Losses - Include any income or losses you anticipate from your business or real estate holdings.
4. Expenses, Expenses, Expenses - Make sure to track all medical expenses you paid, including (but not limited to): Insurance premiums, co-pays, prescription medicine, medical devices, eye exams, glasses/contact lenses, mileage, office visits, and hospital/clinic expenses. Don't forget interest expenses related to your mortgage, and property taxes for your home and car.
5. Charitable Contributions - Gather your tithes or charitable contribution statements. Always keep Salvation Army and/or Goodwill contribution receipts. If possible, take pictures of items donated; especially if they are high retail and in superior condition.
Enter this information yourself using your favorite tax preparation software, or get your tax preparer to do this for you. You can also try one of the tax liability calculators on the internet. The result will allow you to see if you need to put it into high gear and come up with a plan of action; like starting that nonprofit that you have been dreaming of.
Try these links for a quick tax calculation:
http://www.creativefinancialgroup.net/index.cfm?type=C&source=calc_hdr.cfm
http://www.dinkytown.net/java/Tax1040.html#calc
Step 3: Consider Changing Your Payroll Exemptions
If you don't owe money and you're expecting a big refund....ask yourself why? This means the IRS has been holding onto YOUR money – interest-free. Go to your Accounting or HR department during December, and change your exemptions and withholdings on your Form W4. This is the form an employee uses to claim federal tax exemptions. It lets employers know how much federal taxes to calculate and withhold from your paycheck. States with a state income tax have a similar form. The higher your exemptions, the less the employer will withhold and the less you pay in federal income taxes. This means more cash in your pocket.
The IRS has a W-4 withholding calculator on its website that can help you with figuring out the number of exemptions you may want to claim. Also, you might try the free,W 4, or paycheck, calculators on these websites:
http://www.paycheckcity.com/w4/w4instruction.asp
http://www.taxbrain.com/taxcenter/w4calculator.asp
Even if it only affects your last few checks of the year, you can use the extra money from your December income to open a retirement account, do a little holiday shopping, pay debts, travel, or just let it be "Money in the Bank," (Lil Scrappy Featuring Young Buck, 2006).
Shannon King Nash is the author of the award-winning book entitled, "For the Love of Money: The 411 to Taking Control of Your Taxes and Building Your Net Worth." She uses song lyrics and entertaining stories ripped from the headlines to teach readers how to manage their finances and taxes. Shannon is a CPA, Tax Attorney, and regular expert commentator on KJLH FM Radio in Los Angeles, and has appeared on national television. Do you have past tax debts? Need to make an installment payment plan with the IRS or an offer in compromise? Contact the Nash Management Group at 818-986-2665, or visit www.nashgroup-usa.com.
Make Shannon one of your friend's on MySpace! Click here: www.myspace.com/shannonnash.