Keep Your Taxes Under Control

Taxes make up the single largest expense for many American households, so it pays to keep them under control. While your 2000 taxes are fresh in your mind, this may be a good time to review the things you did right and the things that could be improved upon from last year.

* Refunds. Did you make an interest-free loan to the IRS last year? If you receive a large refund on your 2000 tax return, that's exactly what you did. Consider changing your W-4 form so your employer can withhold the amount of income tax that is closer to what you are going to owe for 2001. If you allowed the IRS to save for you last year through overwithholding, consider using your 2000 refund to make your 2001 IRA contribution.

* Penalties. If you incurred penalties for underpaying the tax on your 2000 return, take steps now to prevent this from happening to you this year. If you end up owing more than $1,000 when you file your 2001 return, you may be subject to penalties. Generally, in order to avoid penalties for 2001, you must prepay at least 100% of your 2000 tax or 90% of your 2001 tax. Taxpayers with a 2000 adjusted gross income of more than $150,000 ($75,000 for married couples filing separately) have a higher payment requirement: 110% of their 2000 tax or 90% of their 2001 tax.

You can prepay your taxes either through increased withholding or by sending estimated tax payments directly to the IRS. If you make estimated tax payments, consider sending only the minimum required amount to the IRS each quarter. But put enough money away in your savings account to equal the additional taxes you'll owe when you actually file your 2001 return.

* Missed opportunities. Informed tax planning, accurate return preparation, and complete records will help ensure that you pay the lowest tax allowed by law. Don't wait until tax time to begin looking for deductions and credits. Set up a recordkeeping system early this year to capture the information you'll need for your 2001 tax return. Contact us for advice before you proceed with any major financial transaction.

* New tax legislation on the horizon. The likelihood of midyear tax legislation should be taken into consideration as you do your 2001 tax planning. It's impossible to predict what will actually be included in the final tax bill. Be sure to stay aware of changes that could affect you.

Take control of your taxes and your financial future. Call us for assistance with your 2001 tax planning. Review our article on year-end tax planning article for more specifics on areas you start planning for now:
    2000 Year-end Tax Planning

© Copyright 2001 Raymond S. Kulzick. All rights reserved. 010414.