21 Nov Take a Look at Last Year A quick review of last year’s tax return can reduce surprises
As the year winds down, what can you do to minimize surprises at tax time? Often a simple answer can be found in last year’s tax return. So pull out the file, grab your favorite beverage, and spend a moment or two with your old 1040. Here are some things to review.
- Refund or payment due. Did you owe last year? Have you made the necessary adjustments to lower the payment this year?
- Enough sent in to cover your tax? You need to send in (withhold) enough to cover this year’s tax burden or last years tax to ensure there is not an underpayment penalty.*
- Look for the drivers of tax. Look at your income and deductions. Focus on the larger amounts. Is anything here worth reviewing?
- Any major changes? Did you add a dependent? Lose one? Any change in your marital status? Any age changes that may help you?
- What deductions did you take? Look at the deductions and credits taken on last year’s tax return. Will you qualify for all of them again this year?
- The disappearing act. A number of deductions last year are currently not available this year. They include; educators expense deduction, mortgage insurance expense, and sales tax itemized deductions. If any of these were taken last year you will need to plan for this change.
- Year end tax moves. Remember while time is running out, there is still time to make tax moves to reduce your tax burden. Some suggestions include:
- give cash and property to charitable organizations
- make a 4th quarter estimated tax payment
- sell investments to take losses
- shift deductible expenses to optimize your tax benefit
Most of us can’t wait to store last year’s tax return as soon as it is filed. Perhaps by pulling it back out and spending a moment or two, this year’s tax filing experience can be a better one.
*Special rules apply if your income is $100,000 or over.