tax mistakes to avoid in 2006|
In January, you'll start receiving
correspondence labeled "important tax documents." Of course
these are important, and I suggest you put them in their corresponding
2005 file. Start out with a fresh set of folders for 2006. And get
those important papers to a safe place, above sea level preferably.
Not making a fresh start for 2006 is mistake No. 5.
If you operate a business that is not incorporated, you may want
to consider the advantages of incorporating in the new year. Not
only do corporations give you shelter from some financial risks,
they also give you flexibility for saving on taxes.
But the time to set up the corporation is now to
have it in place at the beginning of the year. If you wait until January to set
up the new corporation, you won't have a tax identification number or bank account
for a few weeks in January and that starts to cut into your tax savings and complicates
your tax filings in 2006. I discuss the advantages of an S corporation in a previous
column, and in another
column. The columns also elaborate on why incorporating gives greater advantages
than either a partnership or sole proprietorship. Although the country is in debt
up to its neck, there's no altruism in overpaying your taxes.
The sixth mistake is giving Uncle Sam too much of
your paycheck. Did you owe much or get a big refund on your 2004
income taxes? Do you expect the same thing to happen this coming
filing season on your 2005 taxes? The culprit is an incorrect Form
W-4, especially for working married couples. Although there was
some reform of the marriage penalty, don't count on much help if
you itemize your tax deductions. The Internal Revenue Service has
an easy-to-use withholding
tax calculator that tells you the number of allowances to claim
on your Form W-4. To use it, you should have a copy of your 2004
income tax form handy and estimates of the same items for 2006.
Armed with this information, make the changes on your W-4 so that
this coming year you'll end up paying the IRS just what you owe,
no more or no less.
The seventh mistake is being in the path
of a big wind and not having the proper insurance in place. Well actually that's
two mistakes because you should evacuate when told. With all that we insure nobody
wants to think about more insurance, but it's too late to add insurance when the
need arises. Bankrate's Insurance
Guide can help you sort through the various types of coverages available.