The tax filing season may end in April, and after you finish doing your taxes, they may be the last thing you want to think about, until next year anyway. But income taxes affect us throughout the year. You can learn from prior years' experiences, benefit from them, and put yourself in a better position for next time. The personal financial decisions you make, the actions you take, and the types of records you keep during the year can all have income tax implications and consequences. By keeping this in mind you will find yourself better prepared and more in control of your own tax situation. The time to start preparing for next year's taxes is now.

Extensions and Payment

First of all, maybe you aren't ready to file by April 15th. If not, you may be able to get an automatic 4-month extension until August 15th by filing Form 4868. If you think you will owe taxes, you should pay the estimated amount you think you will owe by April 15th, when you file Form 4868 requesting the extension. If you do not pay by the April 15th deadline you will have to pay interest on the tax due, even if you get an extension to file. If you still need more time, you can get an additional 2-month extension, until October 15th by filing Form 2688, once you get approval for your initial extension. But you will need to have a good reason.

If it turns out that you owe taxes and you don’t have the money to pay them, you should still file on time, because there is an additional penalty for not filing. You can request an installment payment agreement by filing Form 9465.

U.S. citizens and residents living outside the U.S. have an automatic extension until June 15th. And individuals serving in combat zones have an automatic extension both to file and to pay their taxes.

Amended Returns

When you have filed a return and subsequently find that you made a mistake or left something out, whether it was income, a deduction, or a credit, you can file Form 1040X, Amended U.S. Individual Income Tax Return. Be sure to show the year that you are amending. Form 1040X is a summary form, on which you show the amounts as originally reported, the amended amounts, the differences, and the tax effect.

Adjusting Your Withholding Tax

If you received a tax refund because you had too much tax withheld from your pay, you may be better off to have that money available to use to your advantage during the year. Many people like to count on that refund in the spring each year, but if you want to manage your finances more closely during the year, you may want to make a change on your W-4, Employee’s Withholding Allowance Certificate.

On the contrary, if you ended up owing taxes last year, you may want to change your W-4 to take out more tax. Ask your employer for a W-4 form. If you want less tax withheld, either change from the single rate to the lower married rate, or increase your number of withholding allowances. If you want more tax withheld, either change to the higher single rate, claim fewer withholding allowances, or include an additional amount of tax you want withheld.

Estimated Tax Payments

If you plan to have income other than from an employer this year, such as self-employment income, income from investments or rental property, you may need to make quarterly estimated tax payments during the year. These estimated tax payments are made using Form 1040-ES and are due on April 15th, June 15th, September 15th, and January 15th. You do not have to start making estimated tax payments until you have income on which you will owe tax.

E-filing

If you didn’t file electronically last year, you may want to consider doing so next year. The IRS website provides links to various free tax preparation and filing software programs. Filing electronically is easy and convenient; it can speed up your refund and, if you owe tax, you can schedule a payment as late as April 15th.

Potential Tax Savings

There are some things you can do now to reduce your tax burden next year. The following are some of the more common tax-reducing ideas for individuals:

• If you have a traditional IRA, you can make tax-deductible contributions up to the maximum amount allowed each year. You and your spouse, if married, can set aside this money for your retirement and reduce your income tax now.
• If you don’t have an IRA, you may want to consider opening one. With a traditional IRA, you can deduct your contributions. With a Roth IRA, your contributions are not tax-deductible, but your qualified distributions later on may be tax-free.
• If your employer offers a qualified retirement plan that allows you to defer, or contribute part of your salary to the retirement plan rather than paying it to you, this will also reduce your taxes.
• If you are self-employed, you can contribute to a qualified retirement plan you set up for your business. Also, don’t overlook the deduction you can take as an adjustment to income for up to 100% of the cost of a health insurance plan on behalf of you, your spouse, and your dependents. The plan must be established under your business and you cannot take a deduction for more than your earned income from the business.
• If you have investments, in stocks or example, that are losing value, and you think they will continue to drop, you may want to take the hit and sell them during the year in order to take advantage of the capital losses to offset any capital gains you may have. This may become an important consideration toward the end of the year, when you have a clearer idea of how your investments are doing.
• Remember the tax benefits for education. You can deduct interest you pay on a student loan. There is the tuition and fees deduction. Or you may be better off taking the Hope or Lifetime Learning Credit. Certain education expenses related to your work may also be taken as an itemized deduction.
• If you are thinking about purchasing a vehicle, keep in mind that you can claim a deduction for a clean-fuel vehicle, or a credit for a qualified electric vehicle.

Record-keeping

Don’t lose out on important tax benefits just because you forgot to keep your receipts and other documentation.

• Remember the deduction for sales tax. Keep receipts for any major purchases you make during the year. The total may add up to more than the amount in the optional sales tax table.
• Keep track of your medical expenses, so that you will know exactly how much of your expense has been paid by insurance and how much you paid yourself. If it turns out that you can itemize deductions next year, you will need that information and documentation.
• Get receipts for cash or property you donate to charity. Also, if you do volunteer work, keep track of your out-of-pocket expenses, your actual expenses for the use of your personal vehicle, or a log of the mileage driven for charitable purposes.
• If you have travel, transportation and entertainment expenses for business purposes, you may be able to deduct certain expenses on Form 2106. You will need to keep receipts and records of your expenses. This could be in a diary, notebook, or any other written record that adequately substantiates the time and place of the expense, and the business purpose. Don’t forget to keep a log of actual expenses for gas and oil, or mileage for business use of your personal vehicle. And keep your receipts for parking and tolls. These are deductible whether you use actual expenses or the standard mileage rate.
• If you have a job-related move during the year, you will need the receipts for your moving expenses, including transportation for you and your family and the shipment of your household goods and personal effects, in order to complete Form 3903.
• If you look for a job, remember that job-hunting expenses can be included as a miscellaneous itemized deduction, whether or not you actually get a new job.
• Educators should keep receipts for out-of-pocket expenses for books, supplies, and other materials used in the classroom. They are worth a deduction for adjusted gross income.

Looking Ahead

The important thing is to keep in mind the tax implications of your financial transactions and decisions throughout the year. The tax consequences of a transaction may not always be your primary concern, and there are situations in which a good investment or business opportunity overrides the fact that you will need to pay tax on it. But if you can take advantage of the tax benefits available, without sacrificing other financial benefits, it is worth keeping in mind.

If you are generally good at keeping records, you shouldn’t have any problems when tax time rolls around. If record-keeping is not one of your strong points, you may want to get in the habit of having a place to keep everything, especially receipts, that you think may be needed later, and make a notation on the back as to what the receipt is for.

Do It Yourself

If you paid someone else to do your taxes last year, and you feel you could do it yourself, you can start doing some reading, studying and research now to better prepare yourself to do your own taxes next year.