If you're only now getting around to gathering your tax forms and related documents...
If, here in April, you're trying to find the time to prepare your tax return...
If this is the first time you've given taxes a thought in about 300 days...
If, since it's not yet April 16 (taxes are due April 17 this year), you've yet to get around to taxes this year...
You're probably doing yourself a disservice. A financial one. And very possibly, a hefty financial one.
Believe me, though, I understand. I used to be like you. From the time I first began earning money in my teens up until a few years ago, I pretty much never thought about taxes. I handed off all the paperwork to my dad, who is one of those strange people who is good at preparing tax returns and actually enjoys the process a little. How convenient!
All that changed a few years ago. Something unforeseeable happened to me. Something almost nightmarish. Imagine some unappetizing proposals. Here are some possibilities:
- "Wanna go with me to the DMV? I need to register my car."
- "My firewalking students will be here shortly. Could you please walk over these coals and see if you think they're too hot or just right?"
- "Here, have a slice of my kidney, pineapple, and eggplant pie. It's an old family recipe."
David Gardner: "Selena! We're looking for someone to co-write our new Fool tax guide with Roy Lewis, TMF Taxes. How would you like to spend the next few months immersed in the world of taxes?"
Yikes. Imagine my alarm. (Imagine your alarm, had this happened to you.) As you might know or suspect, I rose to the challenge, albeit with much trepidation. I braced myself for the worst. I prepared to read pages and pages of incredibly dry, excruciatingly boring, unfathomably mind-numbing tax stuff.
Here's the surprise, though. That sick feeling in the pit of my stomach was unnecessary. The process of preparing a book on taxes was actually fun. The material I had to read and write was actually -- dare I say it? -- interesting!
By now, you've probably wondered why on earth I would be chosen to work on this project. There's actually a good answer. When I was initially approached, I confessed that I'd never even prepared my own tax return -- I worried about my qualifications. Sure, I had an MBA. But I'd only taken the required coursework in accounting in business school, and personal taxes were never covered.
I quickly understood, though, that Roy was the one there to provide most of the factual content. He's the one who has labored for years building our very extensive (and completely free!) tax resource area, which houses scores of articles on important topics such as Roth IRAs, capital gains taxes, itemized deduction limits, tax law changes, child- and education-related tax credits, stock splits, wash sales, and more. Roy is a longtime tax pro, with a successful practice of his own. But he's also a Fool, so he regularly offers up articles and routinely answers questions on our Tax Strategies message board. (There are so many people asking questions there that we've recently added another TMF to help Roy out -- welcome, TMF ExRO!)
The reason that I was on the book team was to represent you, our typical reader. It was my job to point out anything that wasn't crystal clear, to ask questions when I didn't understand some concept, and to add any sections I felt were necessary. Oh, and to inject a little additional humor, of course.
The first book was produced in somewhat short order and was a success. (It was a short success, too, at 90 pages.) This past summer, Roy and I worked feverishly to update the book. We ended up expanding it, too. It was actually a 290% expansion, as the current version of the book, The Motley Fool's Investment Tax Guide 2000, is about 350 pages long. We added sizable new sections on marriage and family issues, retirement plans such as IRAs and 401(k)s, education, deductions and credits, medical expenses, and more. And amazingly enough, we kept the price the same.
The point of the book, and our online tax area, is to get across the idea that it's really vital to plan for your taxes all year long. By taking a little time to read up on tax issues that affect you, you'll be well-informed enough to make smarter decisions throughout the year.
Some things you may not know:
- When calculating capital gains, you should be subtracting any commission costs. Let's say you sell some America Online (NYSE: AOL) stock and realize a $3,000 gain. If you paid a $25 commission when you originally bought the shares and again when you sold, you can adjust your taxable gain downward, to $2,950. If your tax rate on the gain is 20%, incorporating that $50 will amount to $10 of savings.
- If you're selling your house and you meet certain requirements, you and your spouse could scamper away with up to $500,000 in tax-free gains on it!
- If you sell a stock and then buy it back within 30 days, you've got a wash sale on your hands and certain rules apply.
- If your income suddenly spikes, perhaps due to capital gains, you may be required to pay estimated taxes each quarter during the year. This applies even if the massive capital gains occur in December -- you will have been expected to have paid quarterly installments throughout the year, even before you generated the gain in December. (Weird? I think so, too.) There are a few ways you can escape this headache, though. Learn more in our (surprisingly inexpensive and astonishingly helpful and amusing) book or in our free tax resource area online.
Learn more about taxes and you could save thousands of dollars in taxes -- or fines -- each year. If you're too crazed this week or next week to get around to it, then do it as soon as you can. Our online area and our book do not become irrelevant as soon as your taxes are filed. They'll serve you well throughout the year. (We even offer free weekly tax strategy e-mails!)
As a final reminder, the Fool's extensive tax resources include:
--Selena Maranjian, TMF Selena on the boards.