How to Avoid Surprises at Tax Time

Morningstar

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.

Christine: Right.

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.