How and When to Plan for Next Year’s Taxes

by David Bakke

tax planningI am about to conclude my little series on Tax Tips, and I thought I would include a short article about planning.

I have been asked to give tax advice quite a few times and have prepared several returns for clients as well.  One thing I always ask them and it is really a rhetorical question that they should be asking themselves is…

When do you start planning for your taxes?

For example, when will you start to plan for your taxes for next year?  Will that be January 1 of 2011?  Will it be whenever you get your W-2s next year?  Will it be as close to April 15 as you can possibly stretch it?

In my book (literally) those answers would be wrong, wrong and wrong.  If I were ever asked this question, my answer would be-“I already started“.  I started planning for next year’s taxes on January 1 of this year.  Yep, sure did.  This is when your fiscal year begins, isn’t it?  Therefore, that’s when you need to start your planning in order to capitalize on all of your possible credits and deductions.

Does this seem like overkill?  Like too much work?   Like not worth the bother?  All of those three are possible reactions.  Again, I think they are all wrong.  Once you do a little shift in your mindset and just put your taxes in the very very back of your mind throughout the year, none of this should take too much out of your daily/weekly/monthly routine.

Let’s go through it real quick.  We’ve already determined that you should have already started planning for next year’s return.  Even if you haven’t yet, it wouldn’t be hard to catch up.

In a previous post, I talked about the four main categories that I track for deduction purposes.  They are JREs (Job-related Expenses), JSEs (Job Search Expenses), UMEs (Unreimbursed Medical Expenses) and Charitable Donations.

I try to pay almost everything with a credit card.  This makes tracking these expenses much easier.  I use one card strictly for my Job Related Expenses, so that statement goes into my “tax” file each month.  With my other major credit card, I simply quickly scan the statement each month, and then write UME or JSE or whichever particular acronym applies to a charge, and file that away too.

Then, come tax time, I simply collate and add up the individual categories and I’m done.

I also keep track of any other expenses or receipts throughout the  year that I know are tax deductible.

In a nutshell, these would be:

Tax Preparation Fees (price of my software, e-filing fees).

Automobile Tags and Emissions fees

And all relevant receipts for  charitable donations (check numbers for church donations, receipts from Goodwill, etc.).

And that’s it.

So you see, just by planting that tax “seed” in the back of your head at the beginning of the year can put you well on your way to making the most of your tax return.

As always, your comments and suggestions are appreciated below.

Comments on this entry are closed.

Previous post:

Next post: