The start of a new year is always a special time. It is a time for reflection and a time for fresh starts. As we say goodbye to 2011 and welcome 2012, it is time to lay the groundwork to ensure a successful year. While taxes are rarely near the top of anyone’s “to-do” list this early in the year, perhaps they should be. Below are reasons to make tax planning an early priority in 2012.
It is important to gather the necessary documents and prepare your taxes (or have them prepared by a qualified professional) as soon as possible. There are a couple of reasons this is so important. First, many Americans find they are due a refund on their taxes. According to an IRS press release, 77% of taxpayers received refunds in 2010. Having money due back is like making an interest-free loan to the government. If you have a refund coming, you want to get your taxes filed early, so that you may get your refund as soon as you can so that you may put that money to work. Of course, if you are one of those who owe money, you want to wait as late as possible to send off your money to the IRS. In this case, the shoe is on the other foot. It is though the taxpayer receives an interest-free loan from the government from the time the tax payment is calculated until the day the liability is actually paid.
The other reason to prepare your taxes early is to see what plans may need to be put in place for the coming year. The earlier in the year these changes are made, the greater the impact they may have for tax year 2012. A careful examination of the tax return may reveal the need for changes in investment strategy. Looking at the sources and amounts of taxable income from 2011 and making assumptions about 2012 is a necessary starting point.
With this information, an appropriate judgment may be made regarding the need to restructure investments. It is important to remember that there are multiple ways to adjust the tax consequences of investments. Certain investments, by their nature produce income that may be taxable or tax-exempt. In other cases, the type of product may affect whether gains are recognized as earned or deferred until funds are withdrawn. Finally, the same investment held in an individual account will produce different tax consequences than that same investment held in an IRA or qualified retirement account.
A qualified financial advisor is able to assist you in choosing investments and investment vehicles that are designed to achieve your tax effects. Remember, though, the earlier in the year you start, the more meaningful the impact. So, Happy New Year and get to work!
For more information on Summit Brokerage Services, visit www.joinsummit.com or contact us at (800) 354-5528.