WASHINGTON — With April 15 behind you, it’s time to breathe a sigh of relief. But if you want to ensure Tax Day 2011 goes along smoothly, realize it’s never too early to start thinking about next year’s taxes.
See if you need to make changes to withholdings
“There are lots of people who say any refund is too big because they don’t want the government to have their money and not get any interest on it,” said Diane Winland, certified public accountant and certified financial planner at Financial Finesse Inc.
Though Winland said she isn’t a fan of writing that check to the Internal Revenue Service, “I actually like to owe a little.”
You can choose to deduct less in taxes each paycheck and instead invest the money to get a return.
“Just make sure you don’t cut too close,” Winland said.
You want to withhold at least 100 percent of your tax liability from last year or 90 percent of your estimated liability for the current year, said Christopher Rhim, certified financial planner and president of Green View Advisers.
If you don’t have a CPA handy, you can consult tax software, such as TurboTax and TaxACT, to get an idea of how much you will owe. In addition, the IRS has a helpful withholding calculator online to help you if you’re considering making changes to your W-4.
There’s no magic number you should aim for in withholdings. “That really depends on the income level,” Rhim said.
If your tax liability is $6,000 and you’re getting the average refund of $3,000 back, “that’s a pretty large free loan you’re giving to the government” he said, but if your tax liability this year was $70,000, a refund of $3,000 shouldn’t be a big concern.
How to approach the W-4
It might have been a pain to fill out that stack of paperwork when you first started working, but you’ll have to revisit the W-4 if you want to alter your withholdings.
Know what changes you’d like to make before you approach your human resources department. Wanda L. Wallace, who has worked in HR for 27 years and currently serves as the director of employee compensation at Messer Construction Co. in Cincinnati,, said that while human resource personnel might be able to walk you through the form if you have questions, you’d be hard pressed to find someone giving you advice.
“They’re not going to give out advice because they don’t want to take on this responsibility,” she said.
While the W-4 is a relatively straightforward form (for example, “Enter ‘1’ if you will file as head of household on your tax return”), Wallace said people don’t realize there can be many right answers.
“There’s flexibility,” she said. “It’s up to you to put down what you want to put down.”
Plan ahead and save your receipts
One piece of advice financial-planning experts stress is to avoid procrastinating.
“Most people wait until the last minute to do taxes,” Rhim said. “It gets more difficult to get a hold of a CPA. A lot of people tend to turn in their paperwork late. That’s where a lot of people stumble and fall.”
If you anticipate big changes in your life — the sale of a home or business, for instance — get a hold of an accountant early enough to know how this will affect your taxes.
Nancy L. Anderson, resident financial planner at Financial Finesse, recommends getting organized. She keeps an envelope in her desk for any out-of-pocket business expenses she can deduct. If it’s more than 2 percent of your adjusted growth income, you can write it off.
“That can save anyone a couple hundred, even a thousand dollars,” she said.
If you give anything to charity, remember to bring your checkbook so you have it in your records.
Along those lines, since you can write up to 50 percent of your adjusted gross income to charity, it might make sense to donate that ratty couch rather than try to sell it on Craigslist.
“You have to have it in your head throughout the year,” she said. “And save the receipt.”