In my book, Keen on Retirement: Engineering The Second Half Of Your Life, I recommend that folks try to limit their news intake to half an hour in the morning and half an hour at the end of the day. That seems to be a good strategy to keep the "always on" news stream from overwhelming us.
But I have to admit that I haven't been taking my own advice since Russia invaded Ukraine. Between the scale of the humanitarian crisis and the widespread economic implications, there's just so much to digest minute by minute. And while I'm in no way equating the human and financial costs associated with this tragedy, I do worry that too much "doom scrolling" through social media could nudge folks towards some rash financial decisions.
None of us can control a war, inflationary concerns, natural disasters, or market volatility. If you're worrying about how global events are going to affect your financial plan, try to focus on things you can control. As we discuss on today's show, right now that means efficient tax preparation so that you avoid some common filing mistakes before Tax Day on April 18th.
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1. Don't file too early.
When tax filing first moved online, some experts recommended filing as soon as possible to prevent fraudsters from filing a fake return using your Social Security number. If a piece of tax data came in later or a change had to be made, you could always amend your return.
Just filing you tax return once is enough of a chore in my book, so this never seemed like a very practical approach. I recommend waiting until the middle to end of March to work on your return or meet with your tax pro. By then, you should have all your 2021 tax documents from financial institutions and custodians. Assemble all the correct info, and you should be able to file correctly the first time.
2. Don't overlook charitable donations.
Most charitable organizations and 501(c)(3) nonprofits will send you a giving statement at the end of the year. But these groups do not report your giving to the IRS directly. Keep track of your giving throughout the year -- or better yet, establish a giving plan -- so that you have your own record come tax time. Retirees who make qualified charitable distributions (QCDs) from their retirement accounts also have to report those gifts, as most custodians will not verify if your distributions go to charity.
3. Don't forget to include a cost basis for securities.
In 2011, changes in tax laws required all custodians to include cost basis on their clients' 1099s. However, reporting on some older securities or inherited securities doesn't always show a purchase price. In those cases, the IRS will assume a cost basis of $0 when assessing gains or losses. Imagine making a $60,000 sale of a security that has a cost basis of $40,000. If you fail to include the cost basis on your return, the IRS will assume it is $0 and you will pay taxes on $60,000 of capital gain rather than $20,000. Even worse, imagine if in that same scenario your cost basis was above $60,000 and you failed to enter it on your return. In that case you would be paying tax on a $60,000 gain when you should had received a loss on your return!
When it comes to legacy securities, the IRS will honor good faith cost basis estimations. You can work with your custodian or your financial advisor to establish an appropriate value.
4. Don't go solo.
Old habits die hard. But if you've been doing your own taxes by hand for decades, consider making this the year you retire your pad and pencil.
At least consider going digital. Tax prep software and apps have really come a long way and can help to safeguard against missing a critical deduction or making a simple math error.
But there have been so many changes to tax laws in recent years that I believe there's real benefit to working with a CPA. Keen Wealth would be happy to connect you with a reputable tax pro who's up to date on all the latest rules, and who can help you avoid the many scams that are floating around this time of year.
And if there's anything we can do to help with your tax prep or any questions we can answer regarding taxes or broader economic trends, please don't hesitate to get in touch. I know how unpleasant it can feel to think about your money when there are so many bigger things happening in the world. But your long-term safety and security are still important. We're always happy to talk through any money issues and discuss how our planning process can provide a little peace of mind.
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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