Well here we are in February getting ready to file income tax forms. Where are we going to find all the documentation we need? If you are like me, you might begin with that pile of unopened mail on the end of the kitchen table. Then I’ll head to the home office and start going through all the piles on top of the desk and the desk – oh and let’s not forget that pile of “IMPORTANT” papers under the desk, receipts in my purse and the top drawer of my dresser. Sound familiar? Are you laughing at me? Or are you thanking the Lord that you are not the most unorganized person on earth after all?
I’m thankful that it is a little easier this year due to all the spend tracking I did in 2010. Thanks to those “buckets” I assigned to my expenditures in Excel I can go pull a full list of tax deductible contributions, medical spending and extra income I need to claim. I’ve had to dedicate a lot less time to tax prep this year.
There are probably on-line tools through your bank that will allow you to track “buckets” of spending as well. You can download the information from your checking account and credit card in QuickBooks or Excel and track as often as you like. Tracking also allows you to see your progress year over year. After all, it does no good to set goals for spending less on eating out or entertainment if you don’t take steps to measure how well you are meeting your goals.
Your financial advisor and possibly your tax preparer can help you find ways to reduce your income tax so you have more money to apply towards debt reduction or savings. Finding ways to be paid to save is a great motivator to save even more.
I used to wait for my income tax return every March or April and use it for clothes, vacations or a huge credit card payment. After more than twenty years of that practice, my financial advisor has convinced me to stop loaning my money to Uncle Sam interest free. I increased the number of dependents on my withholding form to decrease the amount of tax being withheld from my check. Then I started a monthly automatic transfer to a higher yield savings account. Now I have an extra stash of cash to pull from if I need new tires or a house repair. No more charging these items and paying interest until I get a check from the IRS to pay the credit card bill.
I often wonder what would happen to the U.S. budget if half of us changed our approach for income taxes. Would it force the House and Senate to actually balance the budget and stop living on interest free loans from America’s working class? In a few weeks I’ll let you know how I’m dealing with my first year without a really nice IRS check.
If you have some other tracking or savings ideas, leave a comment or send an email to email@example.com.