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Review your stock investments now
“Many
people know to keep track of the cost of their stock investments,” Millian says, “but
they forget to add any dividend reinvestments to that cost.” When you
use dividends from your stock to buy more shares, that reinvestment adds to the
cost basis of your stock. If you sell your stock, you get to deduct the total cost
(original plus dividend reinvestment cost) from the proceeds of the sale on your tax return.
If you forget to include
the cost of the reinvested dividends you’ve reinvested, you’re missing out on a big
deduction.
Take
one of Millian’s clients for example. Five years ago, he paid $3,500 for some
stock. Last year he sold his shares and was going to deduct the $3,500 as the
cost basis. But he forgot that he had reinvested his dividends to buy more
shares.
“In
reality, we picked up another $3,000 of cost from those reinvested dividends
that he would have had to pay taxes on.” That comes out to a tax savings of
$600.
So you need to make sure you track all those costs and reinvestments throughout
the year, so that when tax time comes next year, you’ll save a bundle.
Defer
some income
It’s
quite simple - the more money you can put away in pre-tax plans now, the less
taxes you’ll owe at the end of the year. Different employer plans open up at different
times of the year, Millian points out, but when your company’s plan opens,
take a look at how much you’re investing, if any, and it to the maximum
allowed if possible.
“Put
aside the money now rather than waiting,” Millian says, “because your
pre-tax investments can earn money tax free. The sooner you
put invest in a plan, the sooner it is sheltered from taxes.”
With
non-employer IRA plans can be be invested in at anytime -- you don’t have to wait for them to
open to put money into them. “Look at all the IRA options and see what works
best for you,” Millian says. “Just remember - you’re only allowed to
invest up to $2,000 per person, per year into regular or Roth IRAs.”
Review
your withholdings
Now
is also a good time to take a look at your 2001 withholdings, because it’s not
to late in the year to adjust them to your advantage.
“You
want to make sure they’ll cover your taxes at the end of the year,” Millian
says. "Ideally, you should owe a little. You don't want the government
sitting with your money all year when you could invest it and earn more for
yourself."
"Estimate your income for 2001
and that way you can pre-plan your deductions
and deferrals instead of living with the results after the year has ended.”
Once
the year is over, it’s too late and you are stuck with whatever happened to
you tax-wise. “So if you don’t plan, it could cost you a bundle.”
Do
some spring cleaning
Now
is the time of year that everyone starts to clean out the closets, the basement
and the attic. But many people don’t realize that they are hauling one heck of
a tax deduction to the curb for trash pick-up.
“Start
gathering household and clothing items to donate to charities,” Millian says.
“And don’t forget to list the items on a sheet of paper and attach it to the
receipt you receive from the charity.”
At
the end of the year, you can deduct the lower of the fair market value (resale shop prices)
or one-third of the original cost on your tax return.
Millian
remembers one client whose charitable contributions made a remarkable difference
on her taxes. The client’s father and sister both died two years ago, but she
didn’t get around to cleaning out her families’ clothing and stuff until
last year. The client kept a list of how many shirts, suits, shoes, etc. she
donated to the Salvation Army.
“We
used one of the Salvation Army’s price lists to determine the value of her
donations,” Millian said. “When we did the math, the deduction was over
$10,000.
"Don't
miss out on this cost-free, easy deduction.”
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