The signs of the season are always recognizable. The Liberty kids waving on Woodmen, the Jackson Hewitt booths popped up in Wal-Mart and the streams of cars at Tom Cline’s and H&R Block. Yup, it’s tax time. It may be hopelessly optimistic of me but as unpleasant a process as it is, there is an upside! Since you have all this financial information at your fingertips, you can use it as a quick financial plan checkup.If you have 15 minutes and your tax return, run through this checklist.Form W-2Item 13: Is Retirement Plan at Employer box checked? Are you participating in it? And if you have a 401(k), is your employer matching? You should almost always take advantage of matching if it’s available. If it has been suspended, you might consider diverting your savings to a Roth IRA in the meantime. The long-term tax benefits are better.Form 1040Lines 1-5 Filing Status: If this has changed because of marriage status, make sure you review the beneficiary forms on your IRAs, life insurance and annuities. You don’t want ex-spouses to get more than they should. Nor new spouses to get left out.Lines 8-9 Dividends and Interest: If you have taxable interest coming in, do you have room to gradually move the funds to tax deferred or Roth accounts? Can taxable interest bonds be moved to municipal bonds which pay tax-free interest in most cases? And, in general, are you satisfied with the returns that you are receiving on your dividend and interest-paying savings?Lines 12-17 Self Employment Earnings: If you own a business that reports a profit, discuss using a business retirement plan to reduce reported taxable earnings. While you are talking with your tax preparer, ask if it would be worth having more of your retirement funds come out of your business rather than your or your spouse’s normal employer plans in order to save on the higher self-employment taxes. And a special thought if you have rental properties or you are in the real estate industry: You should view all your properties, savings and investments as one giant portfolio to diversify. If you are exposed to the real estate market by your income or through additional land investments, you should be very cautious about owning any Real Estate Investment Trusts or mortgage-backed securities in your retirement portfolio. Avoid over-weighting any industry. Especially the one in which you are employed.Line 13 Capital Transactions: If you are a frequent stock trader or have significant individual stock losses, perhaps it’s time for professional investment advice. If you have capital losses, don’t forget to track those in your records to take advantage of the carry-forwards against your income in the following years. And while it is too late for 2010, if you know you have losses in a taxable account, consider selling them in favor of different investments within the same asset class. This is known as “harvesting” the tax loss for 2011 to offset gains or part of your income. Be careful of “wash sales” and other pitfalls – ask your tax or financial advisor for clarification.Lines 15-16 IRA and Pension Distributions: No matter how tempting it may seem, there are very, very few scenarios when you want to withdraw IRA money for spending cash before retirement. Between the income tax, the early withdrawal penalty and the loss of compound interest between now and retirement, even – dare I say it – credit cards may be a better option. If you are at risk of bankruptcy, remember that in most cases IRAs and other retirement accounts are shielded from creditors so you should protect them at all costs. Always check with a lawyer if you are in this situation.Line 32 IRA Deduction: If you are eligible for the Roth IRA, you should generally be taking advantage of putting after-tax money into a Roth instead of taking the traditional IRA deduction. Getting a little bit extra additional refund now may seem nice, but think how awesome it will be later to not have to pay tax on any of the years – if not decades – of growth on your savings! And with federal debt issues as they are, do you think tax rates will ever be lower later than they are now? As long as you don’t expect to start withdrawing more than your principal within five years, start a Roth IRA now. If you haven’t contributed your $5,000 ($6,000 if over 50) for 2010, you can do so up until tax day.Overpayment/Refund: Finally, here’s the good one everyone looks for first. It sure feels nice to get a big, fat direct deposit from Uncle Sam. Paying off some bills, buying something nice, going on a trip … but that would also look pretty darn good growing and flourishing in a retirement account or college fund well after the latest plasma TV burns out. There’s also the point that if you are getting a chunky refund, it means the government has been playing with your money as much as the last 16 months without paying you a cent of interest. If you are getting more than a couple thousand back, ask your preparer to (carefully) suggest a new W-2 withholding number.Optimism is often defined as seeing a glass as half full. I prefer the story of a young girl who opened a room filled with horse manure. She leapt with joy and dove in, digging through the unpleasant pile. When her folks asked her what on earth she was up to, she replied “something had to make all this, so it means there’s gotta be a pony in here somewhere!”Nearly everyone I know views tax season as the pile, not the pony. But with a little digging through the results of the process, you can find some good information that will help you and your financial professional make sure you’re riding high in the saddle.Jason Gray owns GoalView Advisors, a Registered Investment Advisory firm in Falcon. He is a Falcon resident and serves as Chairman of the Board for the Eastern Plains Chamber of Commerce. He can be reached at 719-439-2054 or jason.gray@goalviewadvisors.com.
