Make a tax season pledge to yourself

By Linda Stern

WASHINGTON (Reuters) - Maybe you missed New Year's Day, and maybe you don't observe Lent. You can still make resolutions; call them tax-season promises to yourself.

American taxpayers are sloppy, self-destructive denialists when it comes to income-tax season. They throw away receipts that will save them real money. They fail to take deductions because they don't want to attract attention, or bother reading those boring IRS booklets. They trust bad or greedy or incompetent preparers with their good returns, lend money to the IRS for free and give up a lot more money just to keep up their "this is the way I've always done it" habits.

It's time to say: No more! Tax season 2008 is the perfect time to get clean; eliminate old mistakes and make sure you're keeping more of your money going forward. You'll profit if you make these tax-season promises to yourself.

-- I promise not to procrastinate. If you start preparing your taxes now, you'll have two solid months to hunt down receipts, pile extra money into your health savings account or IRA, and save up for taxes you owe. Even if you don't finish filing until April 15, it pays to start early. And don't file an extension if you can avoid it: By this summer, the Treasury will be doling out those extra stimulus checks to folks who have already filed their 2007 returns.

-- I promise to prepare my own return, or at least look at all the forms and instructions. It's never been easier; you can try out programs like Intuit's TurboTax and H&R Block's TaxCut for free online. You don't have to pay until you've decided to file. You can download forms and instruction books from the IRS. Why bother, if you're already paying someone to do your taxes? So that you know exactly what kinds of deductions and credits you have coming to you.

"People should go line by line through the forms so that they don't overlook items that will help them," suggests Maureen McGetrick, a partner with accounting firm BDO Seidman.

-- I promise not to sacrifice actual savings to fear. "People don't claim deductions to which they are entitled because they are concerned that it will trigger an audit," observes Bob Meighan, of TurboTax. That's especially true of items reputed to be "red flags": home offices, big non-cash charitable gifts and the like. That's silly. If it's a legitimate deduction, document it and take it. It's your right.

-- I promise not to fall for that refund anticipation loan. Preparers who offer "instant refunds" are really offering high-priced loans. Consumer groups estimate that the actual annual interest rate on these loans can be well over 300 percent. If you're in such a big hurry for your money, file your return as quickly as possible, file it electronically, and authorize the IRS to deposit it directly in your checking account. You could have your cash in under two weeks.

-- I promise not to waste my refund. The average refund has been running around $2,500. That's not counting the $600 per person extra that the government will be handing out under that stimulus package. Use it in this order: (1) to pay off credit card balances; (2) to invest in something -- like an IRA or college savings fund -- that will cut your taxes next year; (3) to start saving for your next car or vacation.

-- I promise to stop lending the IRS money. Sure, getting a refund is nice. But paying less in the first place is nice, too. If you're getting a fat refund, adjust your withholding at work, or pay less in estimated taxes in 2008. Use the extra money every week to pay down debts or feed your 401(k).

-- I promise to start next year's file today. Both the IRS and private tax preparers are cracking down on undocumented write-offs, so start covering yourself now. Get an accordion folder, and label each section with a category of deduction: charitable gifts, business expenses, health-care costs and the like. Even if you do nothing more all year than throw your receipts into that folder, you'll be ahead by this time next year.

(Linda Stern is a freelance writer. Any opinions in the column are solely those of Ms. Stern. You can e-mail her at lindastern@aol.com.)