If you're not yet dealing with the the fact that tax season is upon us, it's time to face reality. You can't keep putting it off.
So here are a few little tax tips to whet your appetite and get you all excited about your upcoming date with a 1040 form:
- Remember that the IRS has a website that can be helpful. You can look up (and print out) all kinds of tax forms and publications. You can also find helpful articles and guidance -- straight from the horse's mouth.
- Don't let yourself get carried away trying to rack up deductions. If you're going to save 25% in taxes on a computer you buy for $1,000, yes, that's $250. But if you don't really need a new computer right now, you'll still be spending $750 after tax that you don't need to spend.
- If you've accumulated lots of shares of a mutual fund over many years, due to distributions and dividends being reinvested in additional shares, it can be a nightmare trying to sort them all out when you want to sell some of the shares. You may have to specify which of your shares you're selling, for example, and will have to calculate your gains on each. Or you may have to calculate your average cost, which also requires a lot of recordkeeping. A simpler option is to just sell all of the shares at the same time. This is true with stocks, too. If you've bought shares of Intel
(NASDAQ:INTC), for example, in several 60-share batches, and you now want to sell 200 of your 300 shares, you can simplify matters by just selling them all and not having to specify which 200 shares you're selling. (This strategy isn't always best, though -- weigh all your options and consider your big picture.)
- When calculating your gain (or loss) on a sale of stock, remember to incorporate the commission costs. If you bought 50 shares of Microsoft
(NASDAQ:MSFT)for $20 per share back in 2003, paying a $20 commission, your cost was $1,020, not $1,000. And when you sell them for $30 per share, paying another $20 commission, your proceeds are not $1,500, but $1,480. So your taxable gain is $460, not $500. Commission costs can add up if you do a lot of trading.
- Know that if you send in your return and later discover that you made some errors on it, you can fix it. To make the fix, you'll file a 1040X form, which allows you to amend your original return. And you can even amend that form, with another 1040X -- up until three years after the original filing date (or the original due date), or two years after the tax was paid, whichever is later.
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