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Monthly Archives: May 2012

Smart Financial Moves to Make After Filing Your Taxes

Did you get a tax refund this year? If you’re like one of the many taxpayers who gets a few thousand dollars back, you’ll realize that it’s a pretty sizable chunk of change regardless of your financial situation. Did you take such a large sum and simply deposit it into your high yield savings account without making any decisions on what you’ll do with it? There are a lot of smart things you can do with that cash to make sure it improves your financial life and we’ll discuss some of them today.

After you file your tax return, it’s a good time to step back and consider your options. Your tax filing provides you with an opportunity to reflect on your financial situation, and decide what moves you can make going forward.

First Things First: Consider Adjusting Your Withholding

Once your taxes are filed, and you know how much money you owe, or how much money the government owes you, it’s the perfect time to evaluate your income tax withholding. If you have a huge refund, you might consider reducing your withholding by filling out a new Form W4. That way, you have more money each month to use to your advantage, rather than simply giving an interest-free loan to the government. While it might be nice to get a fat refund check, the reality is that you are simply giving your money away to the government. Forced savings is better than no savings, but discipline will trump all that.

If you underpaid by quite a bit, you might consider increasing your withholding so you don’t owe as much next year. While it’s not terrible to owe at tax time, if you owe too much, the IRS will assess penalties and take even more of your hard earned cash. Planning to owe is a fine line to walk, and it’s one to consider carefully. If you are self-employed, and you owe quite a bit, increase what you pay each quarter so that you don’t as much next year.

Smart Moves for Your Tax Refund

If you are receiving a tax refund, you need to figure out what you will do with the money. Some of the smartest things you can do with your tax refund include:

Pay down high-interest debt – If you have high interest debt, such as credit card debt, you should make it a priority to pay some of it down with your tax refund. High interest debt is like an anchor on your finances, help yourself out by paying it down as much as you can afford.
Increase your retirement account contributions – Saving for retirement should be second on your list, behind paying down debt. Make a contribution to your Roth IRA or IRA, increase your contributions to 401(k), or simply put a little extra away in a savings account. You won’t see the benefits of these savings for many years but the earlier you start, the better.
Contribution to a Health Savings Account – An HSA, if you are eligible, is a great way to save for your future medical costs. While it’s not a priority, like the first two are priorities, it is smart and something to consider if you are eligible.
Use some of the money to start a passive income stream/invest – If you’re fortunate enough to have avoided debt, juiced up your retirement accounts, start looking at ways to invest those funds to create an income stream for the future.
Make home improvements that can add to the value of your home – This one falls into the category of treating yourself while doing something financially smart. If there have been some home improvements you’ve had your eye on, like redoing your kitchen or bathroom, take some of the cash to do the job. It’ll improve your enjoyment of your home plus increase it’s value.
Take a vacation – Finally, try to enjoy some of it. If you’re responsible enough to pay down some debt, increase retirement savings, and do all of the other responsible things on this list, take some of the cash and enjoy it. Take a vacation, buy something you’ve had your eye on, and live life. Think of it as an investment in yourself. You know what they say about all work and no play!

Consider How to Pay What You Owe

Many people find that they are unable to pay their taxes. Once you file, it’s important to figure out how you discharge your obligation. The good news is that the IRS and most state governments offer payment plans. This can make it more affordable for you to pay what you owe. If you find yourself overwhelmed, the smart play is to set up an installment plan. You’ll pay interest, but it’s usually a better option than being charged fees due to late payments or paying high interest by putting it on a credit card or taking a payday loan.

Prepare for Next Year

Once you are squared away with this year’s taxes, the smart move is to prepare for next year. Plan ahead for specific spending that can result in a deduction, or a tax credit. You should also consider organizing your finances so that you are keeping track of your tax-related receipts throughout the year. This will help you minimize your tax liability and help you avoid the last-minute rush each year.

QB-Xpert

 

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Tax Records – The What, How, and How Long Should You Keep Them?

Now that your tax return is prepared, it’s time for some spring cleaning, but how long must you keep records before you can throw them out? It depends.

According to the IRS, you must keep the records needed to substantiate all your income and deductions available for inspection. You don’t have to spread them out on the coffee table in case someone from the IRS knocks your door. But upon reasonable notice from the IRS, you must be able to produce the records for an audit.

Except in the case of fraud, the IRS must audit your return within three years from the due date of the return or the date of filing, whichever is later. That statute is extended by three years if you misstated your income by 25% or more, and indefinitely if you file a fraudulent return, or no return at all.

Even if you filed your tax return on time and reported all your income, you should retain the following records for a longer period of time even though the statute of limitations has expired:

Prior Tax Returns – Keep copies of all tax returns you have filed in the past. These returns are helpful in preparing future tax returns, and they provide an interesting road map of your financial history that may be of interest to you down the road.

Payment of Taxes – Keep canceled checks that prove that you paid your taxes when due. The IRS records are not always what they should be, and sometimes they misplace your payment.

Basis of Property – Records relating to the cost of property and improvements to that property should be retained as long as you own that property or a replacement property. If you sold your residence, but deferred the tax on the gain by reinvesting in a new house under the old rules in effect before 1998, you will need to retain the records for both the new house and the old house.
How Should You Keep Your Tax Records

You should always keep a set of backup records safely away from the original set. To ease your pain, keep in mind that financial institutions provide documents and statements electronically via the internet and these documents can be downloaded to backup storage devices or burned to a CD.

One of the benefits of using QB-Xpert is your tax information is safely and securely stored so you can access it and transfer it to the next tax year. Although your tax information is saved when you complete your tax return, it is best to also save your tax return as a PDF file. This step can save you valuable time if you need to access information such as your adjusted gross income or if a copy is required to obtain a loan. In addition, if you use QB-Xpert Free edition, you need to save a PDF file.

Of course, if you want to keep all your records forever, there’s no rule against it if you have the room. We know many people who like to pore over old records, and seem to derive as much enjoyment from it as some of us do looking at old photographs.

But when the neighbors complain that your burgeoning collection of bank statements, checks and receipts are blowing out your windows and flying around the neighborhood, it’s time for some spring cleaning.

QB-Xpert

 

When Do I Amend My Tax Return?

For the last couple of years we’ve waited until about March to file our taxes even though we start the process as soon as we start receiving documents like our W-2s and 1099s. It’s not because we usually owe for the previous year, it’s because we want to make sure we collect all the necessary documents before filing it. Many times, this year included, we received a 1099 later than the others, sometimes by two weeks or more. With everything accounted for, we go ahead and file our tax returns.

But what if we were wrong? What if we missed a form? What’s the procedure for that? In that case we may need to amend our tax returns. For anyone who thinks that may have to do that, here is some information to help it be as painless as possible.

How Do I Amend My Tax Returns?

First off, make sure you need to amend your return. If you’ve made minor math errors, the IRS states
that the service center will be able to handle that without requiring a 1040x. However if you need to change your filing status, credits, tax deductions, or income, then you do need to amend your tax return.

You’ll need to fill out a 1040x Amended U.S. Individual Income Tax Return, print and sign it, and then mail it in since you can not e-file it. It takes about 8-12 weeks for the IRS to process it after they have received the amended tax return.

If you’re amending a tax return and are expecting a bigger tax refund, the IRS advises that you wait for the original tax refund check to come in before sending in your 1040x (you may cash the check you received). If you need help with amending your tax returns, contact QuickBooks Expert can guide you through the process.

But wait, don’t hit the amend button so fast! There is another situation where you do not have to file an amendment. Did you already e-file your tax return and just receive a K-1 or 1099? If you did, but your tax return was rejected by the IRS you may not be happy about the IRS rejection, but you should be happy to know, you don’t need to amend your tax return. All you need to do is fix your tax return and resend it. QBE will guide you through fixing your tax return.

Thoughts on Amending Tax Returns

I’d love to hear about you and how you did with taxes. How many of you had to amend a tax return? How did the process go for you?

QuickBooks Expert

 

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