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Ringing In Holiday Tax Planning Season

2011 December 19

By Paul of Allsup

Despite my adding “holiday” to it, doing end-of-year tax planning can’t be considered a cheerful seasonal event or a cause for celebration.

Nevertheless, now is the perfect time to reflect on the past tax year and look ahead to the tax year to come.

Running with the holiday theme, perhaps you’ll turn over a new leaf like the classic character Scrooge or make a New Year’s resolution to be better prepared for filing your federal income taxes (due April 17 in 2012). Do you need to be better prepared and more organized? Should you seek help to get you through another tax season? These are the types of things you should be asking yourself.

Here are some do’s and dont’s to help make your upcoming tax season brighter:

DO

  • Take advantage of all deductions and credits you have coming to you. Allsup provides some information on tax credits for low income taxpayers here.
  • Seek out free tax filing assistance as needed.
  • Avoid early distributions from your retirement accounts if at all possible. In addition to the loss of your retirement nest egg and jeopardizing needs-based assistance qualification, this can lead to serious tax consequences including penalties.

DON’T

  • Assume you don’t have to file a tax return just because your income is reduced. Check here for some tax basics. You especially want to file to recover any taxes you’ve paid earlier in the year before having to stop working.
  • Forget to share the fact that if somebody is providing you with at least half of your financial support, they may be able to claim you as a dependent on their tax return, helping to return their taxes. Take a look at the instructions to IRS Form 1040 (page 16) for more information.

Best wishes to you this holiday and tax season.

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