As the dust of this year’s tax season settles, our thoughts have already started to drift toward preparing next year’s returns.
It is never too early to consider how to pay less taxes (or to be better prepared for next year), especially considering we are already one-third of the way through this year. However, before we look to the future, it is important to make sure the previous tax year has been properly closed .
We discussed these subjects, along with several other topics, during a recent edition of our weekly radio and web broadcast on KDOW 1220 AM, Wealth Management and You with Connie Yi.
Many people file their tax returns electronically, or have a tax preparer do that for them, without printing a copy. This could be a problem if the computer used for your taxes breaks and you are then audited by the Internal Revenue Service (IRS).
The IRS usually does not conduct an audit for at least two years after you file your tax return. The agency, which processes over 140 million tax returns annually, has as long as six years to seek additional back taxes (and to prosecute for suspected related criminal behavior).
You should print a copy of your entire tax return, initial and date it with a pen, and then securely store it in a fireproof container for at least six years, along with all related receipts and paperwork.
When you have wrapped up last year’s taxes, you can focus on your finances for this year. Here a few steps to consider to help prepare for next year’s tax season:
- Organize your record-keeping to save all receipts in one place, even it is just a shoe box.
- Scan your paper receipts and then store your records as digital files – a secure file back-up system is needed, in case computer breaks.
- Review your paycheck stubs to ensure the tax and benefit deductions are correct.
- Adjust your payroll deductions, if you received a large tax refund for last year without any extenuating circumstances. (Large refund checks are nice, but they really mean Uncle Sam has been using your interest-free money for the last 12 months. (FYI for Apple or Android mobile device users, you can download the IRS2Go 2.0 app to check the status of your refund and much more.)
After you have taken these steps, it is time to start tax-planning for next year. We do not recommend changing your tax professional without a good reason, because continuity and familiarity are important assets in an important professional relationship.
However, if you do need a new tax professional for next year, you should begin that relationship as soon as possible this year, to establish the establish the lines of communication and become familiar with each other outside of the pressures of a busy tax season and looming deadlines.
We also discussed on our broadcast a few additional procedures you can and cannot take at the end of the year to help you maximize your deductions and minimize your taxes for the current year. A podcast of this show is available for download or streaming in our radio show archive.
During this episode of our weekly live call-in show, in response to listener interest in a topic we mentioned recently, we also revisited the topic of digital assets, such as email and social site accounts.
Other topics we covered in this episode include loan modifications for distressed properties, trusts as a part of an estate plan, and trustee responsibilities, all of which we have discussed several times in the past few months.
One aspect of dealing with underwater real estate we discussed, which we had not specifically mentioned previously, is the Deed-in-Lieu of foreclosure option, which can be beneficial to both the borrower and lender, if no secondary liens are attached to the property.
The Deed-in-Lieu option, along with a short sale, is included in the federal government’s Home Affordable Foreclosure Alternatives (HAFA) Program.
One of the questions we received from a listener during the show concerned the best way to transfer real estate property to your heirs. In response, we mentioned that, at least in California, the least-expensive and most-equitable method of transferring more than $150K in assets to your beneficiaries (new CA probate minimum threshold, as of January 1, 2012) is probably through a living trust rather than a will.
If you missed the original broadcast of this show, you can listen to a podcast by directly streaming or downloading the MP3 file in our Radio Show Archive.
If you have questions or concerns about any of the topics mentioned above and would like a free consultation with Connie Yi, a California estate planning attorney, please contact us. We have four conveniently located offices around the Bay area: San Francisco, San Mateo, San Jose, and Pleasanton.