Resolutions

It's a new year. It's resolution time. The time when we promise to ourselves that we are going to do all those things that we know are good for us, but that we really don't want to do. We mean it. We are really going to stick to it this year and not fall back into our old habits by the end of March. From a tax perspective, falling back into our old habits can really cost us in the long term.

• No Procrastination – This is one of the (if not the) biggest hurdles for anyone to get over. Humans are pain averse. Rightfully so, but accepting some short term pain can mean avoiding some severe long-term agony in the future.
  
  • Estimated Taxes - Everyone is required to pay estimated taxes through the year. Most people do this through withholding from their paychecks, so it is generally not a concern for them (if you have significant income outside of your paycheck, it should be a concern). However, if you are self-employed or retired you don't likely have the withholding to cover your tax liability, and you will need to consider if it will be necessary to make estimated tax payments to avoid paying penalties and interest on the un-timely paid tax liabilities. The first payment is due in April, so 2011 planning should start now.
    
  • Timely Filing – While most taxpayers are eligible for automatic extensions of time to file their taxes, filing tax returns after the extended due date can be very costly indeed, if you owe money with the return. For individuals, with an amount due to be paid with the return, filing late can cost 5% per month or part of a month (up to 25%) plus .50% per month or part of a month for paying late plus interest. If you've been waiting to file because you didn't have the money to pay the tax liability, it only gets worse the longer you wait to file.
    
  • Tax Reduction – Once a year has ended, it becomes very hard to effectively reduce your tax liability for that year. While there are some things that might be able to be done, they are very few and far between and you may not be eligible to take advantage of them. If you appropriately plan during a year, the full range of options to reduce your tax liability are available to you.
    
• Do It – "Talk is cheap." "Actions speak louder than words." Yes these are clichés, but they have survived the test of time because they are true. All the plans that you can make aren't worth the paper they are written on if you don't do anything with them. If you want to reduce the amount you pay in taxes in 2011, talk to your tax advisor now/soon. When you are taking your 2010 tax information to him/her, make sure they schedule a few minutes to talk with you about 2011. It will be worth your time.
  

Two resolutions shouldn't be too hard to keep and you will be much happier that you did come January, 2012.