GOLDEN VALLEY, Minn. - Tax day will be here before you know it, only three months away.
Most people are great with deadlines, but unfortunately, procrastination will leave many people in a mad dash to prepare their tax returns on the final day.
Taking the time, now, to organize your tax file will reduce the stress associated with this annual obligation.
Financial Advisor with Morgan Stanley Smith Barney in Wayzata, Dan Ament, spoke with Kim on KARE 11 Sunrise about how to avoid the tax prep tension.
- Getting organized: Begin to organize your tax records to make for a less stressful tax preparation process. Gather relevant tax documents such as: investments (1099 or K1), mortgage interest (1098), wages (W2), medial expense receipts, charitable contribution receipts, education related expenses (if applicable), etc. Tip ...Use your past year's tax file as a guide.
- Reduce your income for 2011: Depending on your eligibility, you may still contribute up to $5,000 to an Individual Retirement Account (IRA) and take a deduction against your 2011 income. If you were age 50 or older in 2011, you can make a "catch-up" contribution of an additional $1,000. Small business owners can establish and contribute to a Simplified Employee Pension Plan (SEP) up through their tax filing deadline plus extensions.
- Tracking "cost basis" of investments: If you had any investment sales that occurred in non-retirement accounts during 2011 you will need to ensure you have detailed "cost basis" for the investment including the dates of purchase and amounts. For investments that reinvest to purchase additional shares, you will need the detail related to the subsequent reinvestments transactions to calculate your total cost basis. Many financial service providers are able to generate a "realized gain / loss" report recapping this activity for your portfolio.
- Adjusting withholding for 2012 - FORM W-4: After preparing your taxes, if you determine that you had too much or too little tax withheld, now is the time to make adjustments to your tax withholding via your W-4. Have your tax advisor review your anticipated tax picture for 2012 and provide recommendations for adjustments if necessary.
- Get a jumpstart with your 2012 tax file: Consider building a file system that allows you to organize tax-related documents throughout the year, rather than tackling "the pile" in April. Personally, I use an expandable file with labels on each tab that allows me to simply drop in the documents as they are received. Believe me; you will thank yourself at this time next year!
- Filing an extension: If you are unable to file a timely return, you can extend your return by filing FORM 4868. Keep in mind this does not allow you to avoid making timely payments for tax that is due.
While there are many tax preparation tools available for individuals to use, it is recommended to seek the guidance of a qualified tax advisor if you have any doubts related to your specific situation.
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