The latest available figures reveal that the average American spends more than twice as much for government as for food.
That disheartening statistic underscores just how costly a mistake it is to think of federal income taxes as simply a once-a-year affliction caused by the need to grapple with Form 1040. Instead, what you ought to do is crank taxes into your financial planning throughout the year. You might be pleasantly surprised to discover the scores of tax-saving opportunities that most individuals overlook each year. The savings can add up to thousands of dollars.
Effective tax planning. The first step for effective tax planning is to organize that ever-growing accumulation of records in your desk drawers, closets, and other storage spaces. Also, if you've been remiss, resolve now to reconstruct missing or incomplete records before they become hazy in your mind.
Haphazard records can cause you to needlessly lose money to taxes. The better the records you keep, the easier it is to search for opportunities, which is what tax planning is all about.
When it comes to sorting through financial papers, err on the side of cauÂtion in deciding which ones to save and which to toss out. To make the chore manageable â and to reduce the likelihood of mistakes â limit yourself to a single category of records at each sitting. For example, tackle all records dealing with investÂments one evening, insurance another, and so on. Incidentally, this do-it-yourself undertaking provides valuable side benefits: less-cluttered storage spaces and a clearer picture of your financial affairs.
How to gain control over your tax tab. Educate yourself on the current tax opportunities and pitfalls. Ideally, you should be equipped to weigh the tax consequences before you make decisions on whether to invest, borrow, or spend.
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In these uncertain economic times, it's more vital than ever that you assume greater responsibility for your financial future. You ought not to rely excluÂsively on paid advisers to keep on top of tax-law changes or other legislation that might make it necessary to revise your plans. At the very least, you should be knowledgeable enough to raise good quesÂtions and evaluate answers when you deal with a professional. The informed client gets the best advice.
A quick, low-cost way to become savvy is to sign up for adult education courses on taxes, investing, and other aspects of personal finance. Choose from an array of classes tailored to your interest that are available at places like high schools and community colleges. Courses cost a fraction of what it would otherwise cost to meet on a one-to-one basis with instructors, who usually are attorneys, CPAs, and financial planners.
They use their hands-on experience to provide helpful, unbiased advice on topics that run the gamut from:
- Timing the receipt of income and the payment of deductions to your best advantage.
- Opening, operating, and closing business ventures.
- Getting married or divorced.
- When and how much money to take out of tax-deferred retirement accounts like IRAs and 401(k)s.
- Whether to make lifetime gifts of money and other kinds of property to family members or to leave the assets to them.
The courses alert you to money-saving techniques that you can apply yourself or, should you decide to seek professional help, test out on your advisors. And, conceivably, those advisors might turn out to be your instructors, whom you've had an excellent chance to evaluate.
About Julian Block
Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes” (Wall Street Journal), and “an authority on tax planning” (Financial Planning magazine). More information about his books can be found at julianblocktaxexpert.com.