Here are some "year-beginning" tax tips:
1) Resolve to become more informed on federal and state tax laws.
It is impossible to know the right moves to make in your daily financial life without a basic knowledge of the tax implications of your actions. Learn what items you can, and cannot, deduct on your tax return, including the special items that are unique to your trade or profession, and the rules governing any special situations that apply to you, and keep up-to-date on federal and state tax law changes. Even if you use a tax professional to prepare your return, the more informed you are on tax matters, the more prepared you will be when you go to your annual tax appointment. One way to stay on top of things, tax-wise, is to become a regular visitor to THE WANDERING TAX PRO.
2) Set up a good system for maintaining tax records and receipts.
Remember that some deductions require special recordkeeping or additional information, such as business meals and entertainment, business use of "listed property" such as automobiles, cell phones and computers, gambling losses, and charitable donations (see tomorrow’s posting). Your tax professional can help you in this area.
I have created a 2021 INCOME TAX ORGANIZER to help you keep track of all your income and deductions, and gather and organize the information you will need to provide to your professional tax preparer in 2022.
The Organizer, which comes in an expandable binder, contains -
* detailed text covering what is taxable and deductible and what information and documentation you will need to properly prepared your 2021 tax return,
* forms, schedules and worksheets for compiling and identifying the needed information, and
* pockets for you to keep statements, bills, receipts, and other documentation during the year by category.
For complete information on what is in the organizer and how to order it go here.
3) If you are planning to make a contribution to a traditional or ROTH IRA, a Coverdell Education Savings Account, a Section 529 College Savings Plan, or a Health Savings Account for 2021 do it now.
By making your contribution on the first available day of each year you will have substantially more in the account by the time you are ready to retire, or when you need the money to pay for education or medical bills, than if you wait till the last minute.
If you make a ROTH contribution today, and later discover that you are not eligible for a ROTH, or, for whatever reason, decide you would rather have the funds in a traditional IRA, you can "recharacterize" your contribution.