Any more, 2011 is dwelling on the past. It's time to move on. What lessons can we draw from this filing season while the pain is still vivid?
DON'T FALL BEHIND.
The hardest tax problems are those when people don't keep up on their taxes. It can happen when you reduce your withholding too much. It can also happen when you don't keep up with your estimated tax payment obligations. If you own an interest in a partnership or an S corporation, it can become a problem in a hurry, especially if you spend the nice distributions they give you without putting them away for your taxes.
The first quarter federal estimated tax payment is due tomorrow. If your tax preparer gave you a voucher, file it with your check as instructed. It won't get any easier next April if you don't.
DO THE EASY STUFF NOW
Most people who come to their tax preparares in April looking for a miracle have already squandered most of their tax-saving opportunities. These are likely to be found at work. Take advantage of the easy stuff:
- Maximize your 401(k) contribution. If you aren't at least putting in enough to get the entire employer match, you are making an unforgivable financial blunder. More is better.
- Review your health plan opportunities. If your employer offers a Health Savings Account option, think not twice, but several times before rejecting it. Many employers offer generous breaks to switch to high deductible health insurance, and most of the time you'll be financially better off with an HSA. If there is no HSA at your job, make sure you take full advantage of the cafeteria plan.
- Start funding your 2012 IRA. The main benefit of these is tax-free buildup of earnings; if you fund it now instead of next April, your money is tax-sheltered an extra year.
- If you are saving for college, put a little money away in a Section 529 plan like College Savings Iowa every month.
EXPECT THE UNEXPECTED
One of the perplexing things about being a tax preparer is seeing somebody with a $500,000 W-2 unable to raise $30,000 to pay taxes in April. You should always have some amount of cash easily available. Some people advocate enough to pay six months of living expenses, but I think you can do with less - especially if you have some other investments, or if you have a house. If you are a homeowner, open a home-equity line of credit, and then don't use it except for emergencies - like a $30,000 tax bill.
AND DON'T FORGET TO FILE!