I am a huge basketball fan and to be honest I much prefer College Basketball to the pro version.
Nothing against the guys that get paid, but there is a different kind of energy in the college game. I have my bracket ready and I am all set for the start of the madness on Thursday (no, I don’t count the “First Four” as part of it.
To me it’s basketball welfare and a grab for more TV money by the NCAA).
Unfortunately in March, there is another kind of madness. It is time to start working on filing your taxes. I have not met a single person who enjoys preparing taxes or paying taxes.
However, it is something we have to do and as a teacher told me a long time ago: the best way to get started on a task is to accept that it has to be done. So let’s get on with it. Here are my 3 Steps to Survive the Tax Madness:
I. Get Organized
You need to gather all your paper work for preparing your taxes. Most of the documents needed fall into these categories:
- Income: W2 Statements, Dividend Statements (i.e., 1099 forms, etc.)
- Deductions: Mortgage interest statements, receipts for charitable contributions, etc. Make sure you take into account tax deductions like having a home office. If you either sold or bought a home in 2011 make sure you have the closing statements readily available.
- Miscellaneous: Medical expenses receipts, business expenses, etc. If you moved in 2011 due to a job relocation, you might be able to deduct some of those expenses.
II. Plan Your Time
This year the deadline for filing your taxes is April 17. Ensure that you set time aside to prepare your taxes. Usually what I do is spend one Saturday in March devoted to this process. That gives me plenty of time to do the work and to resolve any questions that might come up.
If you feel fairly confident of the process there is excellent tax preparation software available that can guide you through every step. Alternatively, you can also seek the help of a tax professional. Finally take advantage of electronic filing and avoid last minute, long lines at the Post Office.
III. Prepare for Next Year
With the filing process completed, start preparing for next year. Ideally you want to be at the point of breaking even in terms getting a refund vs. having to pay the IRS.
If you are receiving a large refund, don’t mistake it for a large bonus from the government. All this means is that they are deducting too much money out of your pay check every time. In essence, you provided Uncle Sam with an interest free loan. Don’t do that, they already mismanage too much of your money.
Instead, work with your Human Resources department and update your withholding information (using the W4 form). That extra cash flow can help you achieve some other financial goals like finishing your starter emergency fund, accelerating your debt snowball, starting on your fully funded emergency fund, or saving more for retirement and college.
If you had to pay a large amount of money, here are a couple of options to improve your position:
- Increase your charitable donations to qualified non-profit organizations.
- Increase your retirement contributions to qualified plans (401K, 403B), IRAs, etc.
20 And He said to them, “Whose likeness and inscription is this?”
21 They said to Him, “Caesar’s.” Then He said to them, “Then render to Caesar the things that are Caesar’s; and to God the things that are God’s.”
Matthew 22:20-21 (NASB)