TOP 5 IN REAL ESTATE, April 2010—(MCT)—About three hours into preparing my federal and state taxes, I vowed to do things differently this year—and I wasn’t just thinking about getting them done in February. All those little things I’ve been meaning to do and never got around to caught up with me.
So here are a few things I’m going to do to minimize the damage for my 2010 return:
1. Get organized. I know it sounds simple, and yet it is so hard to get right. A lot of people recommend just shoving everything you’re going to need at tax time—property tax bills, mortgage interest statements, charitable contributions and the like—into one big folder. That just makes a mess to sort through.
Separate files for child care, medical bills, out-of-state purchases, college funds, retirement accounts—all kept in one drawer or box—is a better answer. Make sure you have all the necessary information, such as taxpayer IDs and addresses, in the file. I learned this year that guidestar.org has the taxpayer IDs for nonprofits on its website—a help when you can’t get the right person on the phone at the last minute.
I threw all my medical bills in one big accordion file last year, and even that was too much. I ended up with multiple copies of some bills, canceled checks and insurance statements. Sorting them out took more than an hour of my life I’ll never get back. I’ll be more vigilant this year about keeping just what I need. I should also have taken advantage of area pharmacies that will print out your entire year’s worth of prescriptions and health purchases.
2. Maximize deductions. All year long I thought about taking advantage of the energy-saving credits to add much-needed insulation to the house but never acted on it. So I was pleasantly surprised to find that the four doors I replaced did qualify for a 30% tax credit. I wouldn’t have known if Lowe’s Home Improvement hadn’t sent me a note.
This year, I’m keeping track of the deductions and credits that are being offered or are expiring that could affect my return. For instance, if I do get around to getting that insulation this year, I’ll get only a 10 percent credit on my 2010 taxes, and there’s a $500 cap.
3. Take advantage of your 401(k). Just another $40 more in my 401(k) each week would have reduced my tax bill. It would also, of course, beef up my retirement funds. The maximum you can contribute to a 401(k) this year is again $16,500. If you’re not there, try to get closer.
4. Think about retirement. Another thing I didn’t get around to doing in time was opening an IRA. This year I can convert my traditional IRA to a Roth and spread the tax due over two years, paying half in 2011 and half in 2012.
5. Change the W-4. I have always tried to avoid a big refund, but I’d rather get money back than pay. This year, I came a little too close to writing a check than I like, all because I didn’t double-check my withholding to adjust for the Making Work Pay Tax Credit. The credit (up to $400 for singles and $800 for couples) needs to be reflected in taxes coming out of your paycheck. To figure out if you’re withholding enough — or too much—use the withholding calculator under online services at www.irs.gov.
(c) 2010, The News & Observer (Raleigh, N.C.).