Morningstar's Christine Benz offers tips for taking control of your taxes and learning from your tax return.
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How to Avoid Surprises at Tax Time
Simple Solutions with Christine Benz
Jason Stipp: I’m Jason Stipp for Morningstar whether you’ve completed your 2009 taxes or you’re still slogging through them you may have run into some surprises and you might be wondering how to address them or avoid them in the future. Here to offer some tips is Morningstar’s director of personal finance. Christine Benz. Christine thanks for joining me.
Christine Benz: Jason nice to be here.
Jason: So I think probably the most unpleasant surprise that you run into when you’re doing your taxes is you find out that you owe a lot of money.
Jason: So how can I you know if this has been my problem this year what can I do to make sure that doesn’t happen to me again in the future?
Christine: Well the key thing is to make sure that you’re taking advantage of all the deductions and credits that are available to you and it’s a changeable mix of items so make sure that you’re up to date on what’s deductible and what you can take as a credit so right now for example there are a lot of energy efficiency credits that you can take advantage of if you’ve made energy efficient upgrades to your home for example.
That’s kind of a new category and that is actually a credit so its deductible directly from the tax burden that you owe so take a look and see whether there are any new items that you may be able to right off or take a credit for that you couldn’t in the past.
Jason: Sure and then what about sure I have made some adjustments sent to my withholding if I end up owning a lot in exact point of the primary reasons that I might be off balance on that from?
Christine: Well it could be so it is an opportunity to take a look at that W4 that you have on file with your employer to see whether you can adjust your withholdings and sometimes if you aren’t paying enough throughout the year you may have to pay a quarterly estimated tax payments and so in lieu of doing that you may be able to make withholding adjustments to avoid making those quarterly payments so that’s another thing to take a look at.
Jason: Okay on the flip side potentially a better surprise I figure out I have a big refund is that something you mean did I done something wrong with my withholding again or you know how should I think about it if I’m getting a lot more money back than I thought.
Christine: Well it could if you’re likely mean that you’re withholding too much so their again you want to look at that W4 form and think about adjusting your withholding and the other key thing to keep in mind is that even though it’s a nice windfall that’s you know you always hear as a free loan to the IRS.
It’s not something you want to be doing you should be pocketing that money on your own behalf so I would say channel what is a positive development into a way to save for the future so find out how much extra you were paying the IRS each month and plan to save that amount on your own perhaps by having deductions automatically come out of your paycheck and move into a brokerage account or even your checking account.
Jason: A great way to get started would be to take that big refund right now and maybe put in to work so.
Christine: Exactly yeah.
Jason: So positive thing for you on the investment front. Any other trends that you can sort of get by looking at your return from last year this year and sort of seeing you know how you’re doing and you know, what can you get from your tax return?
Christine: It can be really helpful to take one return and compare it to the prior years return. I think a lot of people saying that check and send after return and then put it in a drawer and don’t take a look at it. Compare, look at what your trends and earnings have been for a lot of people unfortunately its not a positive scenario for 2009 versus 08 but see whether you can identify any trends in your earnings patterns in the interest you’ve been able to earn on your investments one would hope that that’s trending in a positive direction.
Also take a look at whether you are taking full advantage of any retirement plan contributions that you’re eligible to make. So in 2009 as in 2010 you’re eligible to do 16,500. If you’re under age 50 and 22,000 to a 401k if you’re over 50 and also IRA contributions so 5,000 per se versus under 50 and 6,000 for those over 50 so make sure you’re taking advantage of all of those.
Jason: It seems like a good time to make sure that you’re getting as much as you can out of those. Well thanks for the tips Christine.
Christine: Thanks Jason.
Jason: For Morningstar I’m Jason Stipp, thanks for watching.