Your tax return 2011 will need to be filed before April 15, 2012, for those not keeping track. It’s important to be aware of the deductions you’re planning to take right now. Keep track of your expenses and have them readily available for your tax professional to refer to when needed.
Preparing for your 2011 tax filing can be relatively pain free if you set up a system which organizes tax deductions, exemptions and tax credits. Start by having a clear understanding of your earnings. Next keep a record of all your deductions. Keep them organized by category.
Medical costs should be labeled and separated from other expenses. Most people rarely accumulate 7.5% of their income in medical expenses, but many people do, so keep track of premiums for health insurance, taxi rides to doctor’s offices, co-pays costs, deductibles paid and medicines purchased.
Also keep track of taxes paid to the state and local jurisdictions, real estate taxes and interest paid for real estate. Keep a good record of church tithing and other gift giving. Watch your record keeping, don’t repeat things and don’t leave things out. Allow your tax professional to throw out what cannot be used.
Preparing your 2011 tax does not have to be an ordeal, if you plan and prepare for their preparation. Organize your records and keep the information up to date and properly labeled so both you and your tax preparer can identify them. Be honest with your taxes because you don’t want to be audited and you want to keep a clean record with the IRS. Always plan ahead and keep track of all your rightful deductions.
Tax time starts creeping up as soon as the calendar turns to the New Year. No matter how you feel about the experience, it is one that has to be done. What you do after filing your taxes may be the key to setting the tone for your financial future. Finding the best use for the tax refund starts with careful planning and then continues with consistent follow through.
Making Plans for the Tax Refund
1. Make a list of all the places you would like to use the tax refund.
2. Put them in order of most important to least important.
3. Estimate cost of each of the items.
4. See how far the tax refund would go if you were to spend it on each of the items on the list.
5. Repeat the process several times over the next few weeks to see if your needs, wants or desires begin to shift.
6. Only begin to make your purchases AFTER the tax refund has been deposited.
Possibilities for the Tax Refund
- Look at the big expenses. The last year was a tough one for many people trying to meet the expense of a mortgage. A portion of the tax refund could be used to set up an account that would cover three to six months worth of mortgage expenses if necessary. It would provide some security for the upcoming year.
- Consider the unexpected. The cost of insurance deductibles, surprise auto repairs or even medical expenses can hurt a budget that is already on tight ropes. One of the best uses of the tax refund can be in setting up an emergency account that would only be used to cover any of those unexpected costs.
- Pay off a debt. The release that comes from paying off a debt can be a great motivator for tackling the next debt. Review any rotating credit balances or other outstanding debts. Consider using a portion of the tax refund to pay off that balance in full.
- Invest in the future. Now may be the best opportunity to attend that seminar or take that class that will help you move up the ladder in your career. Measure the amount of increase you will receive with the amount of investment (including time, energy and finances) that it will cost and then thing about taking that leap.
- Give it away. Put a portion of your tax refund to work for others. Setting aside as little as 10% can go a long ways towards helping your favorite charity meet its budget demands.
- Invest in a little fun. The tax refund represents a full year of work. Splurge a little on something fun or exciting for the family. Set aside a portion of the tax refund for a great vacation or for a toy the whole family could enjoy (like that outdoor pool table you have been talking about).
There is never one way to spend the tax refund, but there can be one best way. It all starts with preparation. Thinking about the money and how it should be spent will start the process moving in the right direction. Evaluating the options several times begins to focus in on the best choices. Waiting until the check has been deposited will help to complete the package.
No matter when you plan to face down the tax man, start planning on the refund right now. The more time you invest in planning how to best use the tax refund then the more likely you are to make choices that will push you towards a solid financial future.
Nicole has been in the finance industry for 3 years, currently she blogs about the different ways for people to maximize their savings through the use of a brokerage account.