While the tax season rush has now cooled, individuals shouldn't be putting tax season behind them just yet. Now's the time for taxpayers to take a look at their 2008 tax situation and start making changes to help minimize their tax come next tax season, according to CCH, a Wolters Kluwer business and a leading provider of tax, accounting and audit information, software and services.
"Too many people give a big sigh of relief, shove a copy of their tax return in a drawer, and forget about taxes until next year. But, if you wait until then before you think about your taxes again, it's too late to have much of an impact on what you owe," said CCH Principal Tax Analyst, Mark Luscombe, JD, LLM. "Sitting down now and taking a closer look at your situation is well worth the time and effort."
According to Luscombe, basic questions individuals should be looking to answer as part of tax planning include:
Are there ways to reduce my taxable income? For example, allocating more to deductible retirement savings, including 401(k) and IRA plans.
Are there deductions I could be eligible for with a little more knowledge and better organization? For example, most people could probably deduct far more if they were better at holding on to receipts and, in the case of charitable gifts, avoided cash contributions.
Are there credits I could be taking with advance planning or in light of changes in my financial situation? For example, if you have a child ready to start college this year, you may be able to take a tax credit, like the Hope and Lifetime Learning Credits, that you could be eligible for.
Should you adjust your withholding? If you owed a lot on your 2007 income tax when you filed your return or you are receiving a large refund, it could be a sign that you need to adjust what is being withheld from your paycheck.
CompleteTax, CCH's online tax prep and e-filing service for consumers offers a free Federal Withholding Calculator and customized W-4 PDF that taxpayers can submit to their employers to request a change in their withholding.
These are the basic areas taxpayers should make sure they probe now, so that they have a good foundation established. However, they also should keep a watch on changes that occur throughout the year, for example, some expiring credits and deductions, like those for educators and related to the environment, may or may not be extended for 2008. Luscombe advises individuals whose financial situations are complicated and those who are unclear what steps they should be taking to make an appointment with a tax advisor.
"Tax law is dynamic. Even in an election year when we don't anticipate sweeping changes, we can expect that lawmakers will continue to make adjustments in the tax code particularly related to current areas of concern, such as the housing and mortgage markets," said Luscombe.