After Tax Thoughts

By Doris Dobkins

Date: 05/31/2001 Topic: Budget and Finance > Taxes

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For many of us who just finished paying our taxes, we feel a sense of relief that we are able to put all thoughts of taxes behind us for another 12 months or so.

Right???

Wrong!!!

It's never too early to start preparing for the next years taxes and the sooner you start, the happier you'll be in 12 months.

Here's a few suggestions to get you thinking ahead:

#1. If you don't already have one, get one now. I'm talking about a box or file labeled "2001 Taxes". Every time you get a receipt or document that you'll need for next year's returns, file it away in this folder. If you buy or sell stocks, options, a home, make donations, or do anything that will affect your taxes, save the documents in this file so they'll be readily available when the time comes.

#2. If you qualify, start an IRA, either a traditional or Roth. Put away $50 or $100 a month from now until tax time. The money ads up quickly and is a lot easier to come up with over 12 months than at the last minute if at all.

#3. Start contributing to (or increasing) your 401k contribution. If you've been putting this off, let this be your last day for excuses. When you don't see the money in your paycheck, you'll be surprised how quickly you can adjust your lifestyle to a lower income.

#4. Participate in your company's flexible spending account (FSA). If your company offers this, take advantage of it. Depending on your company limit, you can contribute up to $5,000 a year to an FSA for dependent care, and between $2,000 and $4,000 for medical expenses. Ask your employer for a list of what the money can be used for. Don't be surprised to see such things as prescription copays, contact solution, eye surgery, braces, dental fees, etc. on the list.

If you don't think this program won't make much of a difference in your savings, think again. Here's an example: A single filer earning $50,000 a year putting $2,000 into an FSA per year assuming 28% for Federal Taxes and 7.65% for FICA, is the equivalent of earning a fully taxable $3,108. You've just turned you $2,000 into $3,108.

#5. Do some spring-cleaning. If you have enough stuff, you can have a yard sale. Otherwise you may want to make a donation now to your favorite charity. Salvation Army and others get pretty busy towards the end of the year so now's a great time to make a donation.

#6. Create a plan to pay off your credit cards. The interest is NOT deductible and NOT helping your tax bill one bit.

#7. Assess your employer withholdings. If you got a refund in 2000 and your income and deductions will be approximately the same in 2001, you may want to increase your withholdings. This will increase your paycheck too but don't spend it away frivolously. Pay off a bill, invest it in an IRA or increase your 401(k) contribution.

#8. Take an assessment of all your monthly expenses. What can you do to convert any of them to a tax deduction? Open your mind to more possibilities.

You'll pay more money in your lifetime on taxes than on anything else. They are a bigger expense than your mortgage, car, or yacht. Too many people spend too little time studying this topic and reducing their tax bill as much as they rightfully can. If that's been you, spend some time on the Internet educating yourself on tax deductions, talk to an accountant or CPA, or read some books.

As Ben Franklin said so many years ago, "A penny saved is a penny earned." I'm saying to you today, "A tax dollar saved is a tax dollar earned."

Assessing and planning for next year's taxes is a GREAT place to start!

About The Author:
About The Author: Doris Dobkins is the Money Saving Expert Author of "Financial Freedom A-Z Home Study Course" and publisher of the free weekly ezine $mart Money New$. You can subscribe to $mart Money New$ by sending an email to: Click Here or sign up at her web site, Creative Finances

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