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Ease Next Year's Tax Headaches Now

You're probably much more interested in baseball or your blooming tulips right now than in revisiting your taxes. In fact, I'm sure you haven't given them a second thought since you hit the "send" button on your computer or walked out of the post office. But take a few minutes away from the television or the garden, and give some attention to a few small tax chores. It will make your life a lot easier when it comes time to do next year's taxes.

Organize. Designate a folder or envelope now to hold tax documentation that you'll be collecting throughout the year. Use it to collect receipts for donations, medical bills, or anything else that might reap a deduction on next year's tax forms. You might also use a folder like this to collect stock-sale confirmations or any other paperwork related to investments in taxable accounts. If this is the only thing you do, it will make your life a lot easier, and it will probably take less than a minute.

If you want to really set yourself up nicely for tax season, you can start a slightly more complex filing system and sort your tax paperwork instantly. This one might take you two minutes, instead of one.

Anticipate. Do you have any major life changes on the horizon? Getting married? Having a baby? Sending your oldest to college? I'm sure you've still got your tax forms lying around somewhere, or the software installed on the computer. Now's the time to play with the program or have a quick chat with your professional tax preparer to see how that will affect next year's bill.

For an overview about how you might consider major changes and their tax consequences, take a look at Foolish tax guru Roy Lewis' article "Life and Tax Changes." You can also get an idea about how to prepare for a new phase in life by taking a gander at the Motley Fool Green Light newsletter, which offers up advice for every life stage in its "Money Answers" section.

Adjust. If you wrote the IRS a big check, or you expect to get a hefty refund, consider adjusting the amount of tax withheld from your paycheck to bring things closer to balance. The IRS's own publication, or one of the Internet's many withholding-tax calculators, can help you with this task. Just file some simple paperwork, and you're done. You'll have reclaimed your interest-free loan from Uncle Sam or avoided writing a painful check a year from now.

Shelter. Take a look at the last line on the first page of your 1040 form (or the line marked "adjusted gross income," if you're not using the regular 1040). We all know you really want to see your income go up, but for tax purposes, you want to see the number on that line go down. Ask yourself whether you've done everything you can to hide your money (legally, of course) from the tax man.

Commit now to depositing more money into your retirement accounts, college savings plans, or other tax-advantaged accounts. Ask yourself, too, whether you're holding investments in the appropriate place. If you're saving for retirement, as most everyone should be, you can get much more detailed advice about where to stash your cash and minimize your tax hit by checking out the Fool's Rule Your Retirement newsletter.

Deduct. Remember all those questions your accountant or your tax software asked? They're not just trying to pry into your personal life. (You're no Paris Hilton anyway.) If you have expenses this year in any of the categories covered in those interviews, you might be eligible for a tax deduction. Look back over the form to jog your memory a little bit. As you see those items cross your path in the next year, toss the paperwork into your new tax-information folder, and you can review your eligibility next year.

Then go outside, enjoy the weather, cheer your hometown baseball team, and do it all with the happy thought that next April will be a little bit easier.

Related Foolishness:

Fool contributor Mary Dalrymple welcomes your feedback. The Motley Fool has a disclosure policy.


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