How to Properly Prepare for Filing Your Taxes

While April 15th may seem far away, now is the time to start thinking about your taxes to ensure that your tax filing goes smoothly. The main causes of tax filing errors are rushing and not having all necessary tax documents on hand. Even if you plan to use a tax professional, it is important to start working with them early since it is likely they will be rushed towards the end of tax season. Below are some steps to follow to ensure your taxes get done properly and nothing is missed.

1. Organize Documents ASAP: The sooner your organize your tax documents the sooner you can spot errors or figure out what is missing. You should typically receive all your documents needed to file your taxes by the first week in February since companies are required to post mark most tax related documents by January 31st. These documents can include W-2s, 1099s, Interest & Dividends reports, 1099Bs, and 1098s. If you notice you are missing any of these documents by the end of the first week in February it is a good idea to follow up with the company you are missing these documents from to ensure they are on their way.
2. Research: The tax code changes every year and there are more tax credits and deductions that become available. It is a good idea to look up the most common tax credits and deductions that you can legally take. If any of these apply to you then it is important to get the proper documentation to backup your claims for how much you are going to deduct on your tax return. If you want to learn everything you can about filing your 2009 tax return, you can read IRS publication 17, a 305 page document created by the IRS detailing information about your federal income taxes.
3. Consider Hiring Professional Help: The tax code is complex, and it is unlikely you will read a 300+ page document that details your individual income tax filing for 2009. For this reason, hiring a tax professional is recommended. They file many returns and will likely know fairly quickly what tax credits and deductions will apply to you after a brief interview about your finances and other applicable situations. If you think about it, if a tax professional can find one small deduction that you would have missed, this will likely more than justify the expense of using the tax professional. Also consider going to the tax professional early on in February in order to get started. They can do a brief review of the documents you already have and can advise you on other documentation that you should receive or need in order to get your taxes properly filed. There are also many tax programs or computer software applications that simplify the tax filing process for individuals and businesses.  However, it is still advised to use a tax professional as deductions and credits can still easily be missed when using tax preparation programs.
4. Are you going to owe taxes? Consider how to pay: Typically individuals do not realize they will have tax debt at the end of the year and fail set aside enough money to pay what they owe in full. If you are one of these individuals it is important to plan how you will pay. The IRS may encourage the use of a credit card but this may cost you more in interest and fees than other methods that are available. The most common way to pay taxes if you cannot pay in full is through the use of an installment agreement. An installment agreement will allow you to make monthly payments towards the taxes owed. The interest and fees involved with this type of payment arrangement is typically less than using a credit card but will require a bit more paper work to get setup. It is important to file this right away with your taxes in order to reduce the failure to pay penalty.
5. Plan how you will file: If you mail in your tax return via standard mail and the IRS does not receive it, it is the same thing as you not filing. For this reason, it is a good idea to consider using certified mail. Using certified mail will provide proof that the tax return was mailed prior to the due date and you will know the return was actually received. Another great option is to file your return electronically because you will receive an acknowledgment that your return was received within 48 hours. If you foresee difficulties in getting your tax return filed by April 15th, consider filing for an extension. An extension will give you until October 15th to file your taxes, but if you owe taxes you must pay 90% by April 15th.

Preparing for your tax filing does not need to be overly time consuming, it just needs to be organized and planned out early. Early planning and organization can greatly decrease your chances of making mistakes and can lead to higher deductions and possibly a larger refund each year. While a tax professional is not required, it is highly recommended since it is likely that the fee for their service will be more than offset by savings you will likely receive.

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A couple of weeks ago, I asked, Should a believer contribute to IRA’s, 401K’s or other retirement accounts? The post generated some interesting comments and discussion. While I still think that some form of retirement savings is a good idea, my financial focus was challenged by that thought: Am I really storing up treasure in heaven? Or am I focused on comfortable life here on earth?

This weekend, I finished the bulk of my tax work. I have just about all of the numbers entered and I am waiting for a few documents to arrive before I submit my final filing through Turbo Tax. It looks like I am going to get a pretty nice refund. I’m not crazy about our government sending all kinds of cash to people like me who are going to get more money back than they paid in the first place, but I accept it as a fact of our country.

You see, we are in a financial situation where we depend on our tax refund, again, I wish that was not the case, but this year, that money will go toward paying off the final portion of my school loans and the rest of a 0% introductory APR balance transfer that is about to expire in March. Every year we get closer to balancing our budget without that tax refund – this year will be the closest that we have come to that point. Most years, our refund money is spent before it is direct deposited in my checking account, but I started thinking: what I would do if I could balance my books without that influx of cash every March?

You know what I wish I could do? I would like to my tax refund to my church. Think about it – it is a painless donation, all I have to do is file my taxes. If we could live within our annual income, I could make a charitable donation with my tax refund! Since tax refunds do not count toward annual taxable income, the donation would provide a major deduction on next year’s taxes. I have a number of friends who are getting refunds in the amounts of$4,000 to $6,000 – that is major money.

Now, I prefer to give most of my charitable donations to my church. I am confident that the money is being used wisely and according to the budget. I am certain that funds given to my church will be used in a God-honoring way. You might not have the same confidence in your church – I would ask, then why are you attending there? But if your are not comfortable with a church donation, maybe choose a charity that you are excited about.

I know, the temptation to use free money for retirement or to add to one’s savings account is strong.  I know of a lot of people who use their tax refund for stuff like flat screen televisions or an extra vacation or a down payment on a car or an Xbox or a Wii – yikes! God has promised to meet our needs and if He has met your needs,  maybe your tax refund is something that He could use to meet the needs of your neighbor.

(If your income level is such that you do not qualify for a tax refund, I want to thank you for the donation that you have given the rest of us.)

Article by Stew

Photo by diametrik

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If you are a college football fan, this was a big week. All the fans in my state are upset about all the top recruits that signed to play out of state . . . Here are some articles that I found interesting this week:

I am not quite sure what to think of Lynnae’s post about her 5-second rule. I tend to be a little like Jerry Seinfeld when it comes to germs. Maybe that’s why Lynnae is “being frugal” and I’m just Stew . . .

I do not think I have a shopping addiction, but I read the Silicon Valley Blogger’s ten questions just to make sure.

Ron asks, Would you rather be right or be employed? I tested the boundaries of that concept recently . . . thankfully I am still employed.

Mighty Bargain Hunter eats oat meal for snacks. Bleh. But he seems to save money doing it, maybe I need to broaden my tastes.

Generation X Finance relays some advice on what to do when you have a bad financial advisor. Good article, is what should I do when I give myself bad financial advice?

That’s the list. Have a great weekend and remember, do not just spend money, spend time with family.

Article by Stew

Photo by SD Dirk

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Anyone in the UK who’s interested in saving some money for a rainy day should definitely consider a cash ISA account – they make great financial sense, and are nowhere near as complex as their predecessor the PEP. This guide will go some way to explaining cash ISAs to you, and hopefully make you a more discerning spender…

How does an ISA differ from a standard savings account? The answer is actually very simple and is only one word: tax. A normal savings account will be charged 20% tax on any interest you earn, rising to 40% if you’re a higher rate tax payer; while an ISA allows you to earn interest on a predetermined amount of money cash free. The catch is that you can only deposit that amount in one year, and any money you withdraw, you will lose tax benefit on.

Currently, the predetermined amount you can deposit sits at £3,600 for under fifties, and £5,100 for those over 50 , although this will change at the start of the 2010/11 tax year to allow everyone to save £5,100. As mentioned previously, you should remember that you cannot replace any money in those accounts over the predetermined amounts – for example, if you placed £5,100 in an ISA and withdrew £100 of that money, you would not be able to replace it as you have already deposited your allowance for the year.

Due to their tax-free nature, ISA interest rates do not have to be as high as usual saver accounts in order to generate the same net amount. For example, a 3% Interest rate on a cash ISA would earn the same amount as a 3.5% standard saver, or a 5% saver if you pay the higher rate.

Do yourself a favour, however: Once you’ve got your ISA set up and transferred money into it, don’t be tempted to rest on your laurels. Providers are always releasing new deals and offers, and as most ISAs do not tie you in for a set period, it can often be worth keeping an eye on what’s being offered. Moneysupermarket says “As with standard savings deals, there are catches that you need to watch out for. Some accounts include introductory bonuses, so the interest rate drops after a while – there is no need to avoid such accounts, but you need to make a note to move your money elsewhere once the bonus period ends otherwise you could be left earning an uncompetitive rate of interest.” There is one important rule when it comes to transferring ISAs however, and it is this: Don’t just withdraw the money from one ISA and place it in another, as you will lose your tax benefit for the entire year. Instead, your new provider should allow you to fill in a form in order to transfer the funds from one ISA to the other while keeping the tax benefits.

As previously mentioned, a wise saver can get themselves a great deal if they look around. Cash ISAs can make a huge difference to your rainy day fund, so there’s no reason not to make sure you’re getting the best from them. Compare cash ISAs at Moneysupermarket.com.

This post was provided by the Cash ISAs team at moneysupermarket.com

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I am a numbers guy . . . a little obsessive compulsive . . . I like organization and strategic planning. I understand if some of you might think this kind of information is a little “wonky”, but I thought I would lay out our bank set-up for you and see what you think. This is the bank set-up that Mrs. Stew and I have used for almost four years now:

Every year, we each open a new Chase checking account with $125 bonus coupons. Chase allows for one coupon per customer, per calendar year and an extra $250 every spring is nice to have. So far this year, I have yet to find one of the coupons, though. A bonus coupon would sure come in handy right about now. Of course, in order to qualify for the bonus, we have to set up direct deposit, but that is a small inconvenience in return for the extra cash. The majority of my work check is deposited into my account and the rest is direct deposited into Mrs. Stew’s account.

Our primary family savings account is held at First National Bank of Omaha or FNBO Direct. Back when I opened the account, FNBO had the best savings APR. Now their interest rate is not much better than any other bank, but they pay a little interest in their online billpay account and I do not feel like moving the money somewhere else and having to re-enter all of our bill information again. The cash flow in this account is pretty much in one month and out the next. No long term savings or even designated savings, just day to day operations.

My favorite bank is ING Direct. Here we have our children’s savings accounts and designated savings accounts – I really like ING’s sub account feature. The main thing that I use our ING Direct accounts for is keeping track of alternate income. I have three categories: professional freelancing (related to my job), Mrs. Stew’s childcare income and my blogging income. I deposit revenue from each of these sources and then directly deposit a portion of this money into our Chase accounts regularly during the month. Income from these sources comes in fits and starts, so this allows us to budget according to regular cash flow and build up a surplus over time. The sub accounts also make it easy to keep track of revenue and spending for tax purposes.

Our Chase accounts are kind of the base of operations. We make deposits into our local Chase branches and then transfer the money to its proper destination. I do not automate any area of my finances. I like to control when bills are paid and when transfers take place. After all, I’m a little OCD and I like to tinker . . .

Article by Stew

Photo by Hannaford

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As you have, no doubt,  already read, I am trying to teach my 4 year old son lessons about money. It is hard to teach them everything about money at this age, but I can tell you that children can learn a lot more than we think! It’s only a matter of repeating clear and easy to understand concepts. In fact, most personal finance concepts are pretty easy to understand and this is why I am trying to teach them to my son at this tender age.

By starting his financial education so young, I just hope he won’t have to struggle with credit card debt or having trouble plugging his income and expenses into a budget. I hope that if he understands the true value of money before he starts earning it, he will be more careful and make the best financial decisions for himself.

Today’s money lesson is about the limited power of money. While I have described all the good money can bring in one’s life during the second money lesson, money can also be a weapon of massi destruction when it is not respected or properly controlled. This is why I want to talk about sacrifice.

Think that you can afford just about everything because you have easy access to credit, Whoa! This will only last so long. This is why it is so important to understand how to fit your lifestyle within your budget. But how do you teach a child to stay within a budget? You can do it with practical examples.

Daddy has to go to work this morning

My son sometimes tells me that he misses me when I go to work all day. He doesn’t like when I come home late (about once every two weeks). As I mentioned in my first post about teaching money lessons to children, I explained to him that this is the price to pay in order to live in our house, do activities and play with so many toys!

I tell him that while my job is to go to the bank every morning, his is to listen to his mother and behave like a big boy. This is his job and this is how he participates at his young age in our household. I tell him that I need to leave the house to earn an income during the day so he can play soccer and skate on the weekends, so we can all go on vacations and to afford ordering out dinner on Friday evenings. I am trying to show him that by making sacrifices, he is also rewarded.

You can only have one toy at the store

When you go to a toy store with a kid, it’s like Christmas each and every time! My son starts out by looking at all the toys with his sparkling wide-eyes and he keeps saying “Hey dad! Look at this one! This is cooooool!”. But I one point, I tell him he can chose only one. He usually asks why and I explain that with the money I have in my pocket, I can buy one toy, pay for the gas and pay for groceries (so the family can eat).

Then, I offer him the choice of walking 3 hours to get home, not eating or having only one toy. Luckily for me, he has never picked the first two options

If you wait long enough, we will be able to pay for it

My son has been asking for a Wii for about 18 months. He played at a friend’s house when he was 3 and since then, he “really” wants one. I told him that a Wii is very expensive. But instead of telling him that we can’t afford it, I told him that we have to wait several months so we can buy one.

So month after month, I told him that we were putting money aside so we can buy the Wii and play. We ended-up buying the console for Christmas. While Santa Clause brought him the Wii, we told him that we used the money we put aside to buy the video games. Each time that we have a big purchase (like going on vacation once a year), we tell him that we put money aside each month in order to get by after a large purchase.

The limited concept of money possibilities

I think that the most important thing to learn about money is that while it can help you achieve great projects, you are always limited by what you have in your pockets. Overspending or taking for granted that you will earn more money later on to pay off a debt is not the best way (contrary to many).

Sacrifices and planning your expenses ahead of time is a much healthier way to plan your personal finances. In the end, I just hope that my son realizes that. If I take the time to explain to him how many months we have to save before we can afford specific purchases, I hope he’ll do the same in the future!

Author: Mike.

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Our family finances get a lot of attention this time of year. I clean up the Christmas mess, every year we get better at handling Christmas expenses, but we are still not where we would like to be. I start to review my files to make sure I am ready to finish our taxes. Finally, January is “budget month”, the time of year that we review our budget. By the beginning of February, I have a really good grasp on all the numbers. Not so much meaning that I have control of the numbers, but that I can recite them at a moment’s notice.

Our budget is an Excel spreadsheet with the columns assigned to months and the rows assigned to budget items. I keep track of everything – health insurance premium, social security taxes, medicare, gasoline purchases, everything. I am a little obsessive compulsive at times and when I work with spreadsheets, that side of me comes out in full force. Every major category is color-coded:

• Income – Dark Green
• Giving – Purple
• Saving – Light Aqua
• Taxes – Pink
• Debt – Orange
• Insurance – Tan
• Living Expenses – Light Blue
• Mrs. Stew’s Budget – Light Green

I stare at the budget, I tweak stuff, I add and remove formulas, I play “what if”. It is all great fun.

Except for that Orange patch. Boy, do I hate that section. All the money that we owe. In many cases we spent that money years ago and the stuff we bought with that money . . . well, I cannot even remember what we bought with that money sometimes. What were we thinking?!

Do you know the debt that bothers me the most? It is our car loan. We still owe around $11,000 and we are paying right around 9% in interest. Every month, I send in a payment of $306.68, with a lot of muttering under my breath. We overpaid for that car, the interest rate is too high and when we finally pay it off in three years or so, it will probably quit the next day.

If it even makes it that long.

What is your worst debt? Which one irritates you the most? Or maybe you do not have any debt, in which case, you irritate me. But I am happy for you.

But you still kind of irritate me.

Article by Stew

Photo by AlishaV

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Lots of tax tips from other bloggers:

Lynnae at Being Frugal, prepares her own taxes. I do too and mine are pretty complicated this year.

If you purchased a home in 2009, Debt Free Adventure lists Tax Credits for Home Buyers and Owners. I sold a home in 2009, which will just complicate my taxes. Sigh.

Mrs. Micah listed the 2009 Tax Credit & Deduction List. Thankfully, I have lots and lots of deductions, but again, they complicate things.

If you do not know the IRS tax deadline, seriously? You do not know when your taxes are due? Even Canadians know stuff like that. April 15th is not complicated.

Prime Time Money posted Tax Preparation Checklist – A quick, uncomplicated list of things you may need to file your taxes.

Jeff Rose lists some of the ways in which our taxes have grown more complicated this year: 2010 Tax Tips to Take Advantage Of – 2010 brings on a slew of new tax tips to be aware of. I hope Turbo Tax will sort them all out for me.

Have a great weekend! If you can get a break from doing your taxes, remember not to spend money, spend time with family.

Article by Stew

Photo by Alan Cleaver 2000

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According to your investor profile, you might want to take a different route for investing. Forget what your neighbour or your brother-in-law told you about “the next big thing”. If they were that good, they would be calling you from their yacht in the Bahamas to give your stock tips… not over the fence while pushing their lawnmower  ;-)

In my last post about investing baby steps, I was talking about finding your investor profile. I think this step is omniimportant if you want to succeed as an investor. And succeeding doesn’t mean making millions, it does mean building a solid investment strategy that you will be able to follow that allows you to sleep well at night .

When I started to write this series, it was actually meant to be one post about a general way to approach your investment strategy. While writing it, I realized the quantity of information to consider prior to the start of your investment journey. That said, I will keep writing for this series and I won’t put all the posts in a row (imagine how boring this would be if you are already set?). So today, I am explaining investment strategies starting with beginners up to more experienced investors (in part 2).

The bulldozer (100% fixed income):

Steady as a rock, the bulldozer doesn’t go fast but it will get to destination regardless if the road is slippery or not. This is often the first type of investment you make as a beginner. If you look at 100% fixed income, you are probably withdrawing money from your investment account for retirement or planning a withdrawal though the home buyers’ or lifelong learning plan for the near future. One thing is for sure, you do not want to  risk this money regardless of the upside potential.

- Your first option is definitely looking toward high interest savings accounts (such as SmartyPig giving 2.01%). This money is available at any time and insured up to $250,000.

- Another great idea would be short term certificates of deposit if you plan on making a purchase even a bond  or CD ladder if you are about to retire or there already.

- Money market funds are another investment possibility. However you will need quite an amount (more than 100K) if you are looking for decent yields. As interest rates are at historically low levels, you are probably better off with online high interest savings accounts instead of money market funds.

The  trailer truck (80%-70% fixed income / 20%-30% equity)

Strong and steady, the tractor trailer can go long distances and go faster than the bulldozer. I like this asset allocation for investing beginners since most of your portfolio is secure, but you initiate yourself to the stock market. Therefore, you may experience market fluctuations without risking too much.

- There are already prepackaged mutual funds with bonds and stocks invested according to this allocation. This is a great start to begin your investing adventure as you don’t have to manage the portfolio yourself. However, those packaged investing solutions cost more in the form of higher management fees.

- Another solution would be to split your fixed income portion via a bond ladder and buy balanced funds (more aggressive funds) or Exchange Traded Funds (ETFs are for more experienced investors). Therefore, you would save on fees (bond and CD ladders don’t cost a thing to manage) and you will only pay management fees to a portfolio manager to trade the small stock portion. However, you must follow-up on the portfolio and rebalance it every six months to make sure you keep the same asset allocation.

So that’s it for today, next Thursday, we will explore investment suggestions for 3 other types of investors. The best stuff is yet to come !

Author: Mike.

Image source: hoyasmeg, 91RS

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My wife and I are between churches right now. We have been visiting different local assemblies throughout the fall we are close to making a final decision about the congregation that we will join. Last week we had one of the pastors over for dinner. In the course of our conversation, he made an interesting statement. He said:

I believe that a believer should not have 401K’s, IRA’s or any other type of retirement account.

At first I was a little taken back, but then I started to think about many of the promises that we find in Scripture – like the Apostle Paul’s admonition to a young pastor in I Timothy 6:8:

But godliness with contentment is great gain. For we brought nothing into the world, and we can take nothing out of it. But if we have food and clothing, we will be content with that. People who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge men into ruin and destruction. For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs.

How about the story of the rich man in Luke 12?

Then he said to them, “Watch out! Be on your guard against all kinds of greed; a man’s life does not consist in the abundance of his possessions.” And he told them this parable: “The ground of a certain rich man produced a good crop. He thought to himself, ‘What shall I do? I have no place to store my crops.’”Then he said, ‘This is what I’ll do. I will tear down my barns and build bigger ones, and there I will store all my grain and my goods. And I’ll say to myself, “You have plenty of good things laid up for many years. Take life easy; eat, drink and be merry.” “But God said to him, ‘You fool! This very night your life will be demanded from you. Then who will get what you have prepared for yourself?’ “This is how it will be with anyone who stores up things for himself but is not rich toward God.”

If we take these verses literally, we have to say that “Pastor Jim” might be on to something. It kind of shatters our worldview as Americans, but read this next part carefully:

Then Jesus said to his disciples: “Therefore I tell you, do not worry about your life, what you will eat; or about your body, what you will wear. Life is more than food, and the body more than clothes. Consider the ravens: They do not sow or reap, they have no storeroom or barn; yet God feeds them. And how much more valuable you are than birds! Who of you by worrying can add a single hour to his life? Since you cannot do this very little thing, why do you worry about the rest?”Consider how the lilies grow. They do not labor or spin. Yet I tell you, not even Solomon in all his splendor was dressed like one of these. If that is how God clothes the grass of the field, which is here today, and tomorrow is thrown into the fire, how much more will he clothe you, O you of little faith! And do not set your heart on what you will eat or drink; do not worry about it. For the pagan world runs after all such things, and your Father knows that you need them. But seek his kingdom, and these things will be given to you as well. “Do not be afraid, little flock, for your Father has been pleased to give you the kingdom. Sell your possessions and give to the poor. Provide purses for yourselves that will not wear out, a treasure in heaven that will not be exhausted, where no thief comes near and no moth destroys. For where your treasure is, there your heart will be also.

There are many more passages that emphasize this idea, more than we can discuss here. Basically, Pastor Jim was saying that we need to claim this promise of God. IF we are believers, true followers of Christ, instead of saving money for a comfortable retirement, we will trust Him and use that money to care for our neighbors and especially our church members in need.

I call this idea “radical faith”. At least it sounds radical to our way of thinking, but is he right? What if we have grown too dependent on the easy wealth that surrounds us? What if our faith muscles are so weak that we no longer trust clear promises from God’s Word?

Article by Stew

Photo by eclectic blogs

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