Plan now for '06, tax experts say
By Dave Burge
El Paso (Texas) Times
An estimated 28 million U.S. taxpayers are still scrambling to prepare and file their returns before tomorrow's tax deadline.
Experts, however, say now is the perfect time to start thinking about how to do a better job with next year's taxes.
"It's never too early to start planning for your taxes," said certified public accountant Ron Pate of El Paso, Texas.
Kay Bell, tax editor for personal finance Web site Bankrate.com, said a little planning can improve your financial health.
"It's a good time to start thinking about next year, while it's still fresh in your mind about what you could have done better and what your mistakes were."
If you hired a professional tax preparer to do your return this year, make sure you ask for recommendations on how to improve your future tax situation.
"People are always asking me for a hot tax tip," said Mark Steber, vice president of tax resources for Jackson Hewitt Tax Service. "My hot tip is to start planning for next year right now."
If you received a large refund or owed money on your taxes, examine your withholding allowances, experts say. Talk to your employer about making adjustments, they advise.
The average tax refund as of March 31 was $2,232, Internal Revenue Service spokesman Ken Vargas said.
Some taxpayers view a large refund check as a "forced savings program," Steber said. "I've come around on this one. There really isn't anything wrong with getting a large refund as long as you are prudent with the money."
Others, including Bell at Bankrate.com, recommend taxpayers tinker with their W-4 withholding allowances so they don't get large refunds but don't owe taxes, either.
One way to help reduce your taxable income is by contributing to a qualified retirement plan. If your employer offers a 401(k) plan, make sure you participate and contribute enough to qualify for all of the employer match, El Paso CPA Randall Smith said.
A change in tax law allows taxpayers a choice between deducting the state income tax they pay or state and local sales tax. This is a potential benefit to taxpayers in the seven states that do not have a state income tax.
This deduction only lasts through the 2005 tax year and would take an act of Congress to be extended into the future.
One caveat is that you need to file an itemized return to take advantage of this deduction. Taxpayers who find themselves just short of the threshold that would make itemizing beneficial can try "bunching" medical expenses into a single year or making two years' worth of property tax payments in a single tax year.
