Gather your thoughts and your Tax document
For Deborah Levenson, Vice president of financial planning at Braver Wealth Management in Needham, MA suggests creating a spreadsheet using your year-end account statement ,the estimated value of your home, outstanding balance on your mortgage , school loans, and any other significant assets and liabilities. It’s a good way to see where you are so that you can think about where you are going, she says. Doing it every year makes it easier to see how things have changed over time.
The next step: Set some financial goals .Start with a budget, and then create a savings target. Perhaps you want to save $1,000 every quarter for the kids’ college fund or put aside $500 a month for a new car. Marking them on your calendar can help you stay on target.
People should “true up” their numbers, reconciling their expected tax bill with the amount already paid or withheld. If they’re short, they can make up the difference with an estimated tax payment on Jan. 15. One way to avoid IRS underpayment penalties: Make sure withholding and estimated tax payment equal or exceed 100 percent—110 percent for high-income filers---of the prior year’s tax.
“Getting organized”, says Grafton “Cap” Willey, a managing director in the tax group at CBIZ Tofias in Providence, RI . This is the time to not only gather your 2015 tax documents but also to set up a bookkeeping system to monitor what happens in 2016. When you create a file or folder for the W-2s and 1099s that will soon arrive , for example, make sure you also create files for 2015 documents , such as tax bills and charitable donations that you will generate during the year.
Check on your flexible spending accounts so you don’t forfeit the pre-tax dollars you set aside for child care or medical expenses in 2015. Different plans have different rules, but March 15 is often the deadline for filing claims for reimbursement for expenses incurred in the past year. Double-check the rules of your plan so you don’t miss your deadline.
Finally check your cash balances. If it looks like you’re going to owe taxes, make sure you’ve got enough on hand to cover the tax bill so you don’t have to scramble.
File your income tax returns or get an extension, then catch your breath and keep going.
Once the second quarter arrives, April 15th isn’t far behind .If you don’t have your return ready to file by then, you’ll need an extension. That will push your filing deadline to Oct. 15, but you’ll still need to pay the bill when you request your extension. Fail to pay the full tax bill and you will probably incur interest and penalties.
Most filers will simply have to check a box on their return that says they had health insurance for themselves and their families during 2015.
Those who purchased insurance through health care exchanges and received advance premium tax credit, however, will have to reconcile their income with initial projections they provided to the exchange.
April 15 is also the deadline for funding your 2015 IRA, although different deadlines apply for small business plans such as SEP IRAs and SIMPLE IRAs. Many people wait until they have a rough income tax calculation to see if they can use their IRA dollars-up to $5,500 for those under 50 and $6,500 for those who are older-to fund a Roth IRA, which offers some key advantages .Married couples filing jointly can fully fund a Roth only if their modified adjusted gross income is less than $181,000.
Unlike traditional IRAs, Roth are funded with after-tax dollars and don’t provide deductions that can cut your tax bill now. However, qualified withdrawals from Roth accounts, including any income or capital gains, generally aren’t subject to income tax.
If you owe the government taxes, this is good time to adjust your withholding. If you paid significant tax on investment income , you might want to consider switching up some of your investments. Financial advisers commonly recommend that income- producing investments such as bonds and dividend stocks be held in tax-advantaged retirement accounts. Then use taxable accounts for investments that produce capital gains, which are taxed at much lower rates.
What if you find made a mistake when filing? Don’t fret. You can file an amended return, but wait until the IRS processes your original return. “Don’t do it right away”, Perlman recommends. “Wait a few weeks to avoid any confusion.”
Halfway through and time for a checkup
There aren’t a lot of required financial tasks in the third quarter, making it the perfect time to tackle bigger projects such as estate planning ,college savings, insurance reviews updating beneficiary forms, or revisiting the household budget.
Some of these tasks –such as estate planning –don’t need to be done every year. So pick one project that hasn’t gotten enough attention and dig in. Insurance needs, for example, change over time as people get married, have children, buy homes, change jobs, retire, and have grandchildren. Having a teenager about to start driving, for example, might be a good reason to increase your umbrella insurance policy –an inexpensive form of coverage designed to protect you and your assets from lawsuits.
While you reviewing your coverage ,don’t forget to update your home inventory for your homeowner’s insurance .That might be as simple as making a video tour of your home, identifying all of your possessions to prove ownership. Or you could use a program such as the Insurance Information Institute’s “Know your Stuff” which is available for free online.
This can be a good time to rebalance your portfolio, a task that financial planners typically recommend be done once a year. Using your June 30 account balances, check to see whether market changes have significantly shifted your asset mix. A raging bull stock market, for example, might mean that you’ve now got 70 percent of your assets in stocks, rather than the 60 percent you intended. If things are out of balance , make some adjustments , moving money, say , from stocks to bond to return to your original asset mix. You might want to make these adjustments in your tax-advantaged retirement accounts so that you don’t trigger taxes.
If you’re headed on vacation , take along some financial reading. One basic book Leverson recommends is “The Elements of Investing” by Burton Malkiel and Charles Ellis. For those seeking meatier reading , she suggests David Swensens “Unconditional Success : A Fundamental Approach to Personal Investment.”It’s also a good time to review your budget to make sure you are staying the course. And don’t forget to make sure you have sufficient cash available because back-to-school preparations can bring big cash demands such as tuition payments, textbook purchases , and new clothes for the kids.
Time to start thinking about year’s end
The financial planning pace picks up in the fourth quarter because there are lost of year-end tasks and only three months to do them.
“October is a good time to make sure you are on track for your retirement goals, “says Dana Levit , a fee -only financial planner based in Newton, nothing that people might want to put aside more money for their nest egg.
Levit also tells clients to think about employer benefits well before they have to sign up during open enrollment periods in November and December. Decisions here range from which health insurance plan to choose to how money to tuck into flexible spending plans .Folks enrolled in Medicare might want to do a similar review so they can decide whether they want to change their plan during the open enrollment period, which runs Oct.15 to Dec. 7.
Don’t wait until the last minute to take steps to lower your April 15 tax bill, such as harvesting capital losses by selectively selling securities, prepaying taxes or tuition, or making contribution to charitable organizations. The deadline is Dec. 31 for all those activities, and these transactions don’t happen overnight. For example, if you want to donate stock to a charity, you need to allow ample time for the transaction to be completed. That can take a couple of week. Finally, if you haven’t done it already, check your credit rating. Each of the three nationwide credit reporting companies will provide you with a free copy of your credit report every 12 months. There’s a central website, www.annualcreditreport.com ,and a toll-free telephone number , 877-322-8228, to order your report.