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Tips for one of the most anticipated events of the year

It’s that time of year again. Tax time. For some, this is a joyful time in that your annual bonus (your refund), is on the way. For others, it’s a fingernail-biting, anxiety-ridden time where you learn what you owe. Fortunately, the deadline has been extended to May 17th, so for those that owe and file at the last minute, take that sigh of relief. 

Every year we sift through our financial records, collect tax forms, and try to make sense of everything in our financial lives. This is the one time of year when we’re forced to review things. Why not make the best of it? I mean, if you’re putting forth the effort, why not make it count?

Here are a few tips that I’ve learned over the years either from personal experience, from clients, or from experts on the matter:

  • Organize. Do you have a basic filing system? Everyone needs some sort of organization of their important documents. Figure out what to keep and what to shred. What to save in paper form or digitally. Make sure to keep the last seven years of tax returns, just in case of an audit. Other important documents are mortgage documents, bank and/or investment account statements, bills and receipts, insurance policies, service contracts or warranties, etc. Save yourself from yourself and get organized this year!

  • Protect your information. Fraud and cybercrime are very common. Make sure you provide your tax documents in a safe manner. Encrypt emails and ask your tax professional if they have a secure site to upload documents. And remember, the IRS will NEVER call you on the phone. 

  • Consolidate. After you’ve organized your important documents and tax forms, is it apparent you have way too many accounts? Do you have five different bank accounts, one of which you forgot about, or investment accounts at various firms? It’s probably time to find out what you have and why you have it.  

  • Review your budget. Have you ever looked at your W-2, 1099, or 1099-R and said, where did all the money go? You’re not alone. Take this opportunity to review last year’s spending habits so you can make any necessary adjustments. 

  • Do you owe? Find out why. Make sure your CPA or tax preparer is clear on what has changed from previous years. If you need to make adjustments to withholding, find out what you should do based on your goals. It will depend on whether you like to break even or receive a refund. Are you taking the standard deduction when you could be itemizing? Find out what’s best for your specific situation.

  • Make the most of your tax refund. Pay yourself first! You’ve heard this from us countless times, but here we go again. Emergency fund. Make sure to have three to six months of expenses. Pay down debt. Tackle any credit card balances or other high-interest loans. It’ll feel good! Save for retirement. Add to an IRA, Roth IRA, or stash the cash and increase your 401(k) deferral. If you’ve done all of those things, then either pay it forward or buy something that makes you happy (within reason). 

  • Learn from any mistakes. Take this opportunity to learn. If you’re a procrastinator, get your documents ready earlier. Do you consistently fail to withhold enough? If you’re retired, do you take too much from your portfolio? Come up with a plan and talk it out with someone. 

  • Make sure your CPA or tax preparer is YOUR advocate. This is a great time to evaluate your financial inner circle of people and professionals. Does your CPA or tax preparer take the time to explain everything and give appropriate advice? If not, maybe it’s time for a change. I can speak from experience when I say that it’s magic when a CPA and financial advisor/planner have a cohesive relationship to help clients maximize their situation. 

Make this year the year you finally get organized and start paying attention. Identify what improvements need to be made and make them. If you need a little help or motivation, find someone who’s willing, who’s positive, and consistent. We are honored to do this for our clients.

I leave you with a little humor…

“Worried about an IRS audit? Avoid what’s called a red flag. That’s something the IRS always looks for. For example, say you have some money left in your bank account after paying taxes. That’s a red flag.”  
— Jay Leno

~ Diana Sailler