You probably feel good that you filed your tax returns on or before April 15 and that you can forget about taxes for another year. Not so fast. Remember the struggles involved with the preparation of 2009 returns, took a look at them again, and determine how better record keeping and planning throughout the year could have assisted you during preparation time.
Tax planning begins with good organization. Valuable deductions are lost as a result of poor record keeping. Also, effective tax planning is a year-round undertaking that works best if started early.
Keep good records.
Maintaining good records for your investments is imperative. Most people still have losses as a result of the prolonged bear market and subsequent recovery that began in March of 2009. Keeping track of your cost basis will enable you to readily determine your capital losses or determine the amount of gains for those so fortunate.
With regard to year-round tax planning, start by determining your short and long term goals and objectives. Quantify your goals and objectives so that you can determine what it will take to get there based upon your time line. Almost everyone wants to save for a comfortable retirement, save for a down payment for that first house, or save for their children’s college education.
Take advantage of every opportunity that exists to put money into a tax favored program. Do it as early in the year as possible. Use your employer’s 401(k) plan, start an IRA, or add to an existing IRA. Consider a Roth IRA conversion.
Tax favored education accounts allow you to contribute after tax dollars currently for subsequent tax free withdrawals for qualified education expenses. Education Saving Accounts allow you to contribute up to $2,000 per year, per child, under age 18 to cover costs of pre college education expenses as well as college expenses. State 529 plans allow you to contribute to the plan for qualified college expenses. Contributions are subject to gift tax. The $13,000 annual exclusion ($26,000 per married couple) can be used for this purpose.
