I listen to Dave Ramsey’s radio show and podcast. Do I agree with all he says? No, as he where he lives the cost living is lower than California. Most of what he says, yes. Here’s his recommendations of how to start the new year and some of you out there have had the pleasure of my nagging you about this first one.
Change Your Withholding
According to the Internal Revenue Service, last year’s average tax refund was $2,805. Why not bring that money home in your paycheck instead? If you normally get a large refund, use the online withholding calculator at irs.gov to determine your proper number of exemptions. The more exemptions you qualify for, the more money you get to keep. Submit a revised W4 to your human resources department and enjoy the extra cash.
Invest in Pre-Tax Retirement Accounts
When you contribute to your employer’s Traditional 401(k), the money is deducted from your paycheck before taxes, reducing your taxable income. That means you pay less in income taxes while you build a nest egg for retirement.
Money invested in a Roth IRA is not tax deductible, but it’s still the best option outside your 401(k) if you qualify. For investors whose income is too high to invest in a Roth, Traditional IRA contributions are tax-deductible.
Don’t Forget 2010′s Tax Refund
Nearly 100,000 taxpayers never received their tax refunds last year because of mailing address errors. The average refund for these folks is more than $1,500! If you were due a refund last year, you can check its status at “Where’s My Refund?” on the IRS website.
Avoid the problem this year by opting for direct deposit. And double- and triple-check all the information on your return.
Don’t Miss Tax Deductions
Speaking of mistakes, millions of taxpayers routinely overpay their taxes to the tune of $1 billion because they take the standard tax deduction rather than itemizing their tax returns. It’s simpler, but they miss out on deductions and credits like:
- Mortgage interest
- Property taxes
- State sales tax
- Charitable donations
Make sure you’re getting all the deductions and credits you qualify for on your taxes this year. And if you think you’ve missed some in previous years, you can file an amended return up to three years after the original filing date.