Monday, April 27, 2015

Tax season is over. What did we learn that we can apply next year?


Hooray! If you filed your taxes by the April 15 deadline, the 2014 tax season is in the books for you.

So take a deep breath and don't think about taxes for the rest of the year, right? Sure. And then, to file next year's taxes, you can do the stress-filled mad dash all over again in 12 months, just like you swore you wouldn't every year for the last decade!

A well-known saying, which I tend to use quite frequently, is Albert Einstein's definition of insanity: "Doing the same thing over and over again and expecting different results."

As a wealth adviser, I have a first-row seat to witness the tax-driven display of insanity each year. I've learned a few things from my experiences, and I'm going to share with you three secrets to skipping the madness next year. But be warned, there's no magic solution in the following advice — just good old common sense and organization:

Assess the damage. Another timeless saying: "You can't know where you're going if you don't know where you've been." It holds true for financial planning and taxes. Planning for future tax years is much more effective with the perspective of prior years. This year, review your taxes carefully line by line and dig deeply enough that you understand the mechanics behind your filing. Go through your return with your tax professional or financial adviser while it's still top-of-mind and ask what tax items hurt or helped you. Talk about the strategies that can be employed this year to alleviate taxes next year. Use what you learn to put a plan in place to utilize the strategies you discussed. Finally, implement, implement, implement.


After all, a plan with no action is worthless.
Create a file. It sounds so simple, but hardly anyone does it. That's unfortunate, because this suggestion saves both money and time. Grab a big envelope, a manila file or a plastic organization box. Put it somewhere convenient where dropping tax information inside is a no-brainer. Put a small notebook or a sheaf of blank pages inside for notes. Then, any time tax information is received, drop it inside.

Common items? Receipts for home improvement projects or deductible expenses, information on health-related costs, and tax forms. Follow the same process for electronic records. Create a folder in a logical, easy-to-access place on your computer.

Make a similar folder in your e-mail. Commit to filing important, tax-related documents as you receive them. Do not, at any cost, wait until tax season of next year to start looking for the documents that should already be in your filing system. Remember, your system doesn't have to be complex. In fact, for most people, the more simple the system, the more likely they are to use it.

Make a date. If you followed the advice above and assessed the damage, you'll be due for a second date with your tax situation in the last quarter of the year. This time, you're not looking back. You're looking forward. Put a date on your calendar (and on your tax professional or financial adviser's calendar) in late November or December to do a trial run of your tax filing. Again, if you followed the suggestion and created a tax file, the information you need to complete your forecast should be easy to locate and work through.

Make no mistake, this suggestion requires commitment. However, the rewards are tangible. Opportunities can be found and capitalized upon. Potential problems can be recognized and corrected. Perhaps best of all, you'll close the year and enter tax season with peace of mind.

Believe me, it's worth the effort. Imagine the power you gain over your financial situation when you become a proactive planner, rather than someone who can only react to their situation because the opportunity to make decisions has already passed.