Money 101: How To Start Prepping Now For Your Inevitable 2010 Tax Return
You’re not going to like this. But now — mid-November — would be a really smart time to start thinking about your 2010 taxes. Yes, going to the gynecologist sounds like more fun. And, sure, right now the only taxes you’re thinking about are the sales taxes on your holiday purchases, but consider this: with a little bit of planning this winter, you can save yourself a lot of stress when you file your 2010 tax return. For tips on how to get your files organized before you file, we talked to Lee Molotsky, managing partner of The Molotsky Tax Advisory Group and co-host of “THE MOLOT$KY MONEY HOUR” radio show. You will thank us.
Try to shift your income. If you are on a traditional salary schedule, you may not be able to control which calendar year your income falls under, but if you work in a field like sales, you may have some options. “If you are in a sales position or if you control your income, you may be able to take compensation now rather than deferring it,” Molotsky explains. “For example, if you are a realtor who just sold a property and you have the ability to take your commission now rather than January, do it now.” Doing this, Molotsky says, may not save you money for 2010, but may help in 2011. “We’re in a semi-quandry this year in that we normally suggest you defer income to the following year, but we think that the tax rates are going up. Tax brackets will go up significantly, so this will save you money,” he explains.
Gather all your receipts. Maybe your office looks like something straight out of Real Simple magazine, but if you’re anything like me, you’re lucky if your receipts are in the office, much less in alphabetical order. Molotsky says one of the most important things you can do to save yourself stress is to spend some time this winter getting your paperwork in order. “Go through all your receipts and medical expenses for 2010,” he says. “Separate them into the correct categories so come January when things like W-2s start coming in, everything’s not mixed together. The biggest issue I see is people having incomplete data,” Molotsky cautions. “Get organized early on and make sure all your paperwork is lined up. You can’t file with half of an answer to a question, so if you’re waiting on any kind of documentation, make sure you have it now.” Molotsky also reminds you not to forget to gather the documentation for all your medical expenses. “Medical expenses are one of the biggest issues I see,” he says. “Make sure you have proof of all your expenses from prescriptions, office visits, lab work, specialists, lab fees plus the cost of your major medical premiums. Make a simple list of all these areas and track your expenses. Then, when you sit down with your CPA, you can include everything as a medical deduction.”
Check your contributions. Besides the fact that you’re helping make the world a better place, one of the biggest benefits of donating to a good cause is that your donation is probably tax deductible. Evaluate what you intended to give this year, and you haven’t met all your charitable commitments, you may want to start writing some checks. “What you donate is a very personal question,” says Molotsky. “But if you can afford to make donations to charity, you should contribute what you’re comfortable with.” If you’re unsure whether your favorite cause is a tax-deduction, you may want to check, and again, make sure you have paperwork proof of what you donated. And don’t forget about your IRA. Check to make sure you’ve contributed the maximum you can for 2010; Molotsky explains that this will reduce your taxable income and save you money.
Find a tax professional. Software has come a long way, but when it comes to something as important as your taxes, Molotsky recommends that you leave filing in the hands of the pros. “Too many things that can go wrong,” he warns do-it-yourselfers. “I don’t like pulling my own teeth, so I’ll always go to the dentist,” he says. And while you may not think that crunching numbers is as painful as orthodontic surgery, you probably would agree that finding out too late that you’d cost yourself a bunch of money would be. “If you do prepare your tax return yourself, I recommend you at least have it reviewed by a professional, which you can do at a lower expense,” Molotsky urges. “Mistakes will cost you dearly. Let the pros do what they do best.”
Begin planning for 2011. While Molotsky’s tips will help make your tax return preparation less stressful, he says that it’s late in the game to consider 2010 financial planning. Instead, now is when you need to be thinking ahead to 2011. “What your CPA does is generally rear-view mirror planning. You need to speak to someone in January or February to do year-long planning for the months ahead,” Molotsky explains. “You should sit down with a fee-based registered adviser to come up with a plan.” And Molotsky says to let go of the idea that only ladies who can wear Louboutins to their appointments need an adviser. Whether you’re looking for advice on how to make some investments or how to ensure you’ll be able to retire, a professional can make sure you’re on the right path. “There is no minimum income required for solid planning,” he says. “It doesn’t depend on your income, just want you hope to accomplish.”
There. That wasn’t so bad, was it?
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