|
Timing your taxes
|
 |
February 26, 1999: 10:58 a.m. ET
Let your money work for you! When you file can save you hundreds of dollars
|
NEW YORK (CNNfn) - Let's face it, filing your taxes is about as much fun as root canal.
But when you file can at least help numb some of the pain.
Bob Carto, a tax preparer in Columbia, Md., said the right timing could save you enough for everything from a nice dinner out to a vacation.
If you're expecting a refund, he said, the best strategy is to get your tax return in early, forcing the IRS to cough up the money as quickly as possible.
"There are some people who think of a refund as a gift from the government, but that's your money," he said. "You've given the government that money through your withholdings."
Getting it back in your bank account as quickly as possible, he said, allows you (rather than Uncle Sam) to earn interest on your money.
Make your money work for you
If you are among the millions expecting to owe the IRS this year, however, tax practitioners say this is one situation where procrastination does, in fact, pay.
"Even if you have that money stored in a regular bank account, you are going to be earning 1 percent or 2 percent interest on it," said Cindy Frailing, a spokeswoman for the National Association of Tax Practitioners. "If it's a relatively substantial amount of money, you could earn a lot. But any amount of interest you could earn is better than none."
If placed in a high-growth mutual fund, Carto said that same money in the first three-and-a-half months of the year (up until the tax season ends April 15), could earn up to 4 percent a month.
Depending on how much you owe, the earned interest on the money during that period might be enough to cover a car payment, plane ticket or get you that designer outfit you've been eyeing in the department store window.
"That's your money and you could have it hard at work in a mutual fund or even a money market fund or savings account," he said. "Having that money in Uncle Sam's hands does nothing for you."
According to tax practioners, a substantial number of tax payers overwithhold on their taxes - on purpose.
But that, they say, is a mistake.
Carto said one of his clients habitually withholds too much from his paycheck, getting an annual refund of up to $10,000 each year.
"There are people who overwithhold for psychological security, so they don't get slammed (at the end of the year)," he said. "They are afraid that the tax code will change and they will end up having to pay at the end of the year."
But that money, if placed in a mutual fund over the course of a year, could yield up to 10 percent for the taxpayer.
"There are a fair number of people that claim zero withholdings," Frailing said. "That's their method of savings and at the end of the year they get a $2,000 check from the IRS. They should've put $20 a week away in their 401(k) retirement plan."
The 11th hour filer
Regardless of your tax status, professional tax preparers caution the gainfully employed not to wait until the clock strikes twelve to file their returns.
"If you are using a professional to have your taxes prepared and something comes up in the interviewing process, you'll need time to go back and find that information," Frailing said. "Inevitably you forget something. Maybe you brought the wrong property tax bill, or didn't get tuition for your children's education all gathered today."
If you wait until April 14, you'll have to ask for an extension.
More importantly, you may not find an accountant, certified public accountant or tax attorney available if you wait too late in the game.
"Just about everyone I know that prepares taxes for others gets really bogged down by about March," she said. "You may not get an appointment." 
--by staff writer Shelly K. Schwartz
|
|
|
|
|
 |
|
