You've just finished filing your 2009 income tax returns, or you were too rushed and filed for an extension. And here I am talking about 2010 tax planning? Yes…I am.
The first quarter is already in the books. Now is the time to get a jump on your 2010 tax planning. Here are four steps to get started:
- The first thing to do is to get organized. Set up a folder for all of your 2010 documents. OK, the high tech people can scan everything. Start by saving your paystubs. Real estate taxes, car taxes, charitable contributions, and the notice of your state income tax refund are other examples of items to put in this folder.
- Monitor your estimated tax payments. There are two ways to avoid the underpayment penalty for taxpayers that file their returns “married filing joint.” Taxpayers whose adjusted gross income is under $150,000 can pay in 100% of the prior year tax. Taxpayers whose income is over $150,000 need to pay in 110% of the prior year tax. Alternatively, taxpayers can pay in 90% of the current year tax.
- For those who are required to do so, the required minimum distribution (RMD) is back after being exempt last year. This will increase your gross income and may increase the taxable portion of your social security.
- Revisit your 401(k) plan contributions. Employees are allowed to contribute up to $16,500 per year pre-tax. Taxpayers age 50 and older can contribute another $5,500 for a total of $22,000. Many employers have eliminated the match they were making. If you are still eligible for a match, contribute at least the amount that is required to get the match. Then take a look and see if contributing the maximum to an IRA or a Roth IRA is more appropriate.
ACTION ITEM: Hopefully your 2009 return is filed. More than one quarter of 2010 is gone. Start your 2010 tax planning now to make this year less taxing.
Thomas F. Scanlon, CPA, CFP®