Personal Annual Financial Review Part 4: Taxes

Next it is time to have a look at your taxes. Understanding and taking proactive steps will make sure you achieve the smallest tax burden possible. This part will cover Income and Property taxes. You will analyze each thoroughly to be sure you don't miss anything!

Income Taxes:

  • Was enough withheld from your pay? Was too much withheld? Make adjustments to your w-4 and other documents at work if needed. Do this for federal, state (if applicable) and local taxes (if applicable). The idea is to have little or no tax refund if possible.
  • IRA/401(k) contributions: Do you need to adjust the amount you deposit based on any change in tax laws or employer matching? Increasing these is a great way to reduce your tax burden!
  • IRA Conversion: Depending on your income this year and your tax bracket it may make sense to convert some or all of you traditional IRA assets to a Roth IRA. It is best to consult a tax adviser about this if you are unsure in any way. It does pay off in the long term!
  • Tax Credits: Are you eligible for any credits? Examples: First Time Home Buyer, education credits, foreign tax credits, and so on. This list is long so be sure to do some research or consult a professional so you don't miss any!
  • Tax Deductions: Should you take standard deduction or itemize? Run your numbers both ways to compare. Common (non-itemized) Deductions: student loan interest, 50% of self employment taxes, medical bills over 7.5% of income, etc. This list can also be long and you should consult a tax adviser if you are not sure!
  • Accuracy: Make SURE all of the tax documents (W-2, 1099, etc) are completely accurate. The documents you get are what the IRS gets as well so they need to be 100% right!
  • Social Security Statement: Be sure to review this each year and that it matches what you actually earned. Call the number on the statement with questions or concerns. Inaccurate information can cause to to get a lower benefit!
Property Taxes:
  • Carefully review your property tax bill for any changes. Make sure it is accurate!
  • Did your amount increase or decrease? Why? Be sure to call and ask them questions if you are unsure about any adjustment.
  • Exemptions: Most counties have a homestead exemption for your primary residence. Has this been filed and reflected on your bill? Do you have to refile it each year or is it permanent?
  • If your change in property tax is large it may be worth to file an appeal and have it re-evaluated. If you and the county disagree on the value of your home it is worth getting a appraisal to support your case. Property tax appeals can be tedious but well worth the time!
Spending a couple of extra hours on your taxes and studying them can pay off. Be sure you get all deductions, credits, and advantages you are due. Make sure you are investing in the right kind of IRA account to get the most out of your money in retirement. Roth IRA's are almost always the best choice for those who qualify. Paying a little now to consult a tax adviser can really pay off for years to come. Use it as a learning experience that will pay for itself many times over!

Tune in next week for the final step in the Personal Annual Financial Review process (Part 5): Estate Planning!