MANHATTAN, Kan. – Taxpayers who breathe a sigh of relief when their state and federal tax returns are filed may be surprised to learn that a financial management professional suggests beginning to organize 2011 tax information now.
“Organizing your paperwork can pay off,” said Carol Young, K-State Research and Extension financial management specialist, who has observed that some taxpayers’ lack of organization can result in costly mistakes. To reduce errors and missed opportunities for deductions, her recommendations include:
* Determine a location – a drawer and folder are examples – to place all tax-related documents for easy retrieval at tax time.
* Keep track of 2010 (and previous) tax returns; plan to review the 2010 return in preparing the 2011 return to spot oversights or missed opportunities for deductions.
* Organize tax information before an appointment with a tax preparer, and take last year’s tax return with you.
* Plan to file electronically to receive a refund more quickly, usually within 10 to 14 days.
* Soon after the first of the year, in January and early February, carefully watch for mail that contains income documents such as W-2 wage and tax statements, Social Security benefit statements, and 1099 forms for income from pensions, interest and some investments. Open the tax documents immediately to check for accuracy before placing them in the tax folder.
* File as you go. For example, place receipts for out-of-pocket medical expenses such as physician, clinic, testing, immunizations, prescription drug and/or mileage to and from offices for treatment that may qualify for itemized deductions in one folder or envelope, and create one or more separate envelopes or folders for other deductible categories. Real estate or vehicle taxes, home improvements that may qualify for a tax credit, and charitable contributions are other common expense examples.
* Document charitable contributions of money. If you regularly put $10 cash in a church or other basket being passed, start donating with a check. Pay one or more month’s contributions with a single check to minimize paperwork. Charities that have a name and address connected to the contribution will typically provide a receipt.
* Consider using a computer software or checkbook program to track income and expenses.
* Note intended purpose, such as Mary Brown Memorial Scholarship, on charitable contributions.
* Highlight charitable or other tax deductible expenses in check or debit card register, or on credit card or other bill each month when balancing account or paying the bill to reduce the risk of overlooking deductions.
* Keep a list when donating used items to charitable organizations; ask for a receipt, and be realistic about value, as, if audited, the value of a used suit or coat will likely be comparable to its garage sale value ($5 for a suit, $7.50 for a coat, $2 for a blouse or shirt or $25 for a used washer).
* Pay attention to tax news, such as announcements for tax credits or cost/tax saving programs such as a low-cost energy audit and interest-free loans to underwrite energy efficient improvements.
* For tax questions, consider visiting the IRS website.
* Plan to do taxes early next tax season to speed refund or have extra time to prepare to pay additional tax liability.
* If working, but with less annual income than the amount for which filing a tax return is required, file anyway to reclaim the withholding taxes withheld from paychecks.
* If earning less than $50,000 in income and a simple return, look for IRS-sponsored free income tax preparation sites hosted by local organizations using IRS-trained volunteers, such as TCE (Tax Counseling for the Elderly), VITA (Volunteer Income Tax Assistance), AARP and others. Such sites help low- and moderate-income individuals and families save on tax preparation fees and take advantage of credits and deductions they are eligible for.
Prefer to do it yourself? According to the IRS, 70 percent of all taxpayers have an AGI (Adjusted Gross Income) of $58,000 or less and could consider using the IRS Free File to e-File. Find your 2010 AGI number at the bottom of page one of the 1040 form to consider this option for next year.
Commercial software packages are readily available to buy over-the counter or online that can be used to e-File also.
Young noted, however, that often the cost listed is for the federal tax program only, and there may be an extra charge for the required state version.
Otherwise find a tax professional you trust, she said.
More information on financial management and growing your savings is available at K-State Research and Extension offices throughout the state and online.
Sidebar: How much should you save?
MANHATTAN, Kan. -- Saving regularly is essential to building financial security, yet age, employment, stage in life, health, wellness and family responsibilities may all factor into the ability to save, and, equally important, to save regularly.
“Make savings a habit -- and a priority,” said Carol Young, K-State Research and Extension financial management specialist, who recommends automatic direct deposits to savings or other interest-bearing accounts whenever possible “because it’s easier to save money you don’t see and are less tempted to spend.”
The goal is to spend less than you earn, and save the difference, said Young, who recommended saving 10 to 20 percent of income, and aiming to have at least six months of income saved in an accessible account.
More is better, she said.
Concerns about a tight economy and uncertainties in the employment market highlight the need for savings and for having an emergency fund, said Young, who explained that having as little as $250 to $500 in an accessible emergency fund can eliminate the temptation to use high-cost revolving ‘quick’ loans, borrow from banks or credit unions without having time to shop for a low-interest loan, or add to a balance on a credit card unnecessarily when an emergency occurs.
Another way to begin an emergency fund is to save at minimum of the equivalent of one month’s living expenses, such as rent or house payment, utilities, car payment, etc.
As we go through life's ups and downs, we become better able to separate needs from wants, and that, too, can encourage saving for financial security, the financial management specialist said.
“Look for ways to save,” Young said. After paying off a vehicle, continue making payments to yourself into an interest-bearing account; if earning dividends, invest, rather than spend earnings; and, think long and hard before taking on additional debt.
“The promise of no interest on purchases until a year or two down the road still obligates future earnings that could be better applied elsewhere,” Young said.
More information on managing money successfully and growing your savings is available at K-State Research and Extension offices throughout the state, and online.