Peggy R. Anderson

Extension Agent

February 17, 2010

It’s Fair Time! 

     Well it’s not fair yet but it will be 4 months from tomorrow that the Burke and Divide County Fairs will be taking in your open class exhibits. So, here’s your warning to decide what flowers you want to bring, set aside your best looking pickles and plan to finish up those craft items. And of course look through those new recipes you’ve been collecting this winter, you just may have a grand champion among them!!

Use Your Tax Refund as a Financial Planning Tool 

     Once their annual tax return is filed, many people think that they can forget about income taxes for another year. This is a mistake. Instead, Barbara O’Neill, Financial Resource Management Specialist, Rutgers Cooperative Extension and other financial experts advise using your tax return as a financial planning tool. In other words, review the tax return line by line to look for clues to strategies that can improve your personal finances in 2010. Below are seven specific strategies to consider:

• Adjust Tax Withholding- If the amount of taxes withheld from last year’s income varied by more than $1,000 (over or under) from the amount owed, this is an indication that tax withholding may need an adjustment. Ask your employer for a new W-4 (tax withholding) form and complete it with the correct number of withholding allowances for your anticipated income and deductions next year. The W-4 form includes a worksheet to make this calculation.

• Increase Savings Yields- Between 2008 and 2009, many people saw interest rates on their cash equivalent assets (e.g., certificates of deposit and money market funds) plummet, resulting in a lower figure (than on their 2008 tax return) for “taxable interest.” In early 2010, some short-term certificates of deposit (CDs) are paying less than 1%. This is a wake-up call to shop around for higher-yielding cash equivalent assets. Available alternatives include online bank accounts, credit union accounts, and Series EE and Series I U.S. savings bonds.

• Start Estimating Taxes- If, during the past year, you started receiving income for which taxes were not withheld, start making quarterly estimated payments to avoid possible under-withholding penalties. Example of income sources that may required estimated withholding are pension and Social Security benefits, unemployment compensation, and distributions from IRAs and other tax-deferred retirement savings accounts.

• Claim Overlooked Tax Credits and Deductions- Perhaps, while calculating your 2009 taxes, you came across deductions and/ or credits that you forgot to claim in prior years. If so, you may still be able to get money back from the IRS. Taxpayers have up to three years to amend their tax return to claim overlooked tax benefits. Visit www.irs.gov and download Form 1040X, the form for completing an amended tax return.

• Keep Better Tax Records- If you found yourself hunting for missing documentation to verify tax credits and deductions when preparing your 2009 tax return, resolve to keep better records. Place any receipts or cancelled checks that may be useful for taxes in an envelope throughout the year. Then, when time permits, sort them into categories (e.g., charitable deductions and business expenses). If you make charitable contributions via cell phone texting (as many people did for Haiti relief), save your phone bill.

• Step Up Tax-Deferred Investing- Tax-deferred contributions to employer retirement savings plans (e.g., 403(b) and 401(k) plans) and, sometimes, Traditional IRAs (depending on income and access to an employer retirement plan) decrease federal taxable income. If you saved little or no money last year in retirement savings plans, try to save something (or more) in 2010. Even 1% or 2% more of pay will pay off over time. The maximum annual contribution allowed by law is $5,000 or $6,000 (if over age 50) for IRAs and $16,500 or $22,000 (if over age 50) for employer retirement savings plans.

• Anticipate Tax Changes- As you completed your tax return, you may have noticed sections that did not apply to you right now. In another year or two, however, they might. For example, as baby boomers begin to retire, they will need to start calculating the tax (if any) owed on Social Security benefits and withholding estimated taxes for pension distributions. Younger taxpayers may need to plan for the tax implications of the birth of a child or when children can not longer be claimed as dependents.

     Along with net worth and cash flow statements, an income tax return can provide valuable clues to the strengths and weaknesses of a family’s finances. So, when you finish your 2009 taxes, don’t just file away a copy of your return. Look it over, as a financial advisor would, to assess the strengths and weaknesses of your current financial situation. Then take action such as adjusting tax withholding, increasing savings, and keeping better tax records. Your tax return is a financial planning teaching tool. Look it over and learn from it

Schedule:

Wednesday, February 17 – Burke County

Thursday, February 18 – Burke County

Friday, February 19 – Burke County

Monday, February 22 – Burke County

Tuesday, February 23 – Divide County