The only effective way to control and conquer your tax and financial issues is to review them throughout the year. Now that the tax season has passed, it's time to review your personal tax and financial situation and perhaps do some spring cleaning to your tax and financial house. Here are some useful tips:
Start that new filing system now
Purge your 2003 files. Destroy documents that you don't need. Create new files for your 2004 documents. Keep a tax and financial calendar that shows all deadlines for making payments and filing tax returns and reports. And if you don't have a filing system, create one in order to organize and locate your tax and financial records. You can find some other suggestions here.
Identify your tax opportunities for 2004
There are many credits and deductions available to you, including retirement, education, homeownership, child care, and many more. Identify those that will reduce your taxes and make sure to qualify for all of the deductions and credits that are available to you. You really must have a working knowledge of all of these various deductions and credits in order to take advantage of them. So, make sure to check our tax article archives for additional information on the many deductions and credits that we have discussed in the past.
Plan your portfolio for 2004
Because of the lower tax rates on both dividends and long-term capital gains, think about restructuring your portfolio in 2004 to take advantage of the lower taxes provided by that income. Consider using your tax-deferred accounts (such as an IRA account) for short-term trading purposes and for holding non-dividend- paying stock. On the other hand, consider using your regular taxable account to hold dividend-paying stock and for long-term holdings.
Rid yourself of "stuff" you don't use
Are you paying for a cell phone you rarely use? A magazine you never read? A mail-order video service you forgot about? An extra cable box for that basement TV you never watch? A membership to a gym you rarely attend? If so, now is the time to dump those wasted services and pocket the cash. Ben Franklin once said, "A penny saved is a penny earned." That old saw still holds true today. Most of us have "stuff" that we neither need nor want. So consider dumping it, and saving the money. And, while we're talking about stuff that we don't need, don't forget to clean out those closets and make charitable contributions of those clothing, toys, shoes, and anything else that you've outgrown or simply no longer care for. The deduction that you can generate can allow for significant tax savings.
Plan for your retirement
Did you know that you could put away more money into a retirement account than ever before? If you're over age 50, you can even make additional catch-up contributions. And all of these retirement programs allow you to put this money away for a rainy day while reducing your current taxes. Does your employer match some of your 401(k) contributions? Then consider making at least that much of a percentage contribution in order to maximize the total return to your 401(k) plan. Retirement plans are one of the few "loopholes" left for most of the working public. So, make sure not to overlook the substantial tax savings that you can generate simply by saving for your retirement.
Get a grip on your debt
Take a look at your current debt, especially your credit card debt. If you have good credit, and you have greater than a 12% rate on any of your cards, ask the cardholder for an interest-rate reduction. Or consider transferring that balance to another low-interest credit card. Remember that personal interest isn't deductible (such as credit card interest and auto loan interest), so consider paying off that debt with a lower-rate deductible home equity loan. There are many other ways that you can get your debt under control. Start by visiting the Credit Center and read all of the valuable articles there.
These are just a few tips that will help you to get your tax and financial house in order for the New Year. There are likely others that you can think of that are specific to your unique situation. Regardless, make sure to take the time now to review your tax situation so you can save tax dollars down the line.
Roy Lewis lives in a trailer down by the river and is a motivational speaker when not dealing with tax issues, and he understands that The Motley Fool is all about investors writing for investors. You can take a look at the stocks he owns as long as you promise not to ask him which stock to buy. He'll be glad to help you compute your gain or loss when you finally sell a stock, though.