The only effective way to control and conquer your
tax and financial issues is to review them throughout the year. Now
that the tax season has passed, it's time to review your personal
tax and financial situation and perhaps do some spring cleaning to your
tax and financial house. Here are some useful tips:
Start that new filing system now
Purge your 2003 files. Destroy documents that you don't need. Create new
files for your 2004 documents. Keep a tax and financial calendar that
shows all deadlines for making payments and filing tax returns and
reports. And if you don't have a filing system, create one in order to
organize and locate your tax and financial records. You can find some
other suggestions here.
Identify your tax opportunities for 2004
There
are many credits and deductions available to you, including retirement,
education, homeownership, child care, and many more. Identify those
that will reduce your taxes and make sure to qualify for all of the
deductions and credits that are available to you. You really must have
a working knowledge of all of these various deductions and credits in
order to take advantage of them. So, make sure to check our tax article archives for additional information on the many deductions and credits that we have discussed in the past.
Plan your portfolio for 2004
Because of the lower tax rates on both dividends and long-term capital gains,
think about restructuring your portfolio in 2004 to take advantage of
the lower taxes provided by that income. Consider using your
tax-deferred accounts (such as an IRA account) for short-term trading
purposes and for holding non-dividend- paying stock. On the other hand,
consider using your regular taxable account to hold dividend-paying
stock and for long-term holdings.
Rid yourself of "stuff" you don't use
Are
you paying for a cell phone you rarely use? A magazine you never read?
A mail-order video service you forgot about? An extra cable box for
that basement TV you never watch? A membership to a gym you rarely
attend? If so, now is the time to dump those wasted services and pocket
the cash. Ben Franklin once said, "A penny saved is a penny earned."
That old saw still holds true today. Most of us have "stuff" that we
neither need nor want. So consider dumping it, and saving the money.
And, while we're talking about stuff that we don't need, don't forget
to clean out those closets and make charitable contributions
of those clothing, toys, shoes, and anything else that you've outgrown
or simply no longer care for. The deduction that you can generate
can allow for significant tax savings.
Plan for your retirement
Did
you know that you could put away more money into a retirement account
than ever before? If you're over age 50, you can even make additional
catch-up contributions. And all of these retirement programs
allow you to put this money away for a rainy day while reducing your
current taxes. Does your employer match some of your 401(k)
contributions? Then consider making at least that much of a percentage
contribution in order to maximize the total return to your 401(k) plan.
Retirement plans are one of the few "loopholes" left for most of the
working public. So, make sure not to overlook the substantial tax
savings that you can generate simply by saving for your retirement.
Get a grip on your debt
Take a
look at your current debt, especially your credit card debt. If you
have good credit, and you have greater than a 12% rate on any of your
cards, ask the cardholder for an interest-rate reduction. Or consider
transferring that balance to another low-interest credit card. Remember
that personal interest isn't deductible (such as credit card interest
and auto loan interest), so consider paying off that debt with a
lower-rate deductible home equity loan. There are many other ways that
you can get your debt under control. Start by visiting the Credit Center at The Motely Fool and read all of the valuable articles there.
These are just a few tips that will help you to get your tax and
financial house in order for the New Year. There are likely others that
you can think of that are specific to your unique situation.
Regardless, make sure to take the time now to review your tax situation
so you can save tax dollars down the line.
Related Links:
If you like the way Roy Lewis simplifies confusing tax issues, check out his just-published book, The Motley Fool's Investment Tax Guide 2002: Smart Tax Strategies for Investors. This handy 360+ page guide covers just about every tax aspect of a typical Fool's life: investing, marriage, children, education, homes, home offices, retirement accounts, medical expenses, and much more.)
May 14, 2004
