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Tuesday, December 21, 2010

Year End Financial Checklist

It is hard to believe that another calendar year has almost come to an end. Perhaps it was because I was still dealing with normal April, May, and June client projects come October that the end of the year has snuck up on me. Feel free to add more items to this very incomplete year-end checklist. Here is what is on mine:

1. Review all entries in my accounting software to make sure there are no errors, computer or human. Last night I caught some computer errors. Believe it or not, a person can categorize something correctly in their software, and it can show up in the wrong area. I split my income into employer income (W-2) and self-employed/contract income so I can calculate self-employment tax amounts. Somehow, there was Schedule C income that showed up under my W-2 category. There was no entry problem, so I eliminated the category class and tried again until the computer put the income into the correct category. (Necessary for step 2).

2. Review books to make sure depreciation and mileage have been taken. Fairly self-explanatory, but many self-employed people miss these non-cash expenses when putting together their year end tax records. Also, make a print copy of the mileage log for records.

3. Cut year end tzedakah checks, or not? Make an additional mortgage payment or not? Unless I'm mistaken, we still are operating in the arena of uncertainty for 2011 tax planning, but it looks likely that for at least two years tax brackets will remain unchanged. Those tax payers sitting on the edge of two brackets or on the edge of credit phaseouts, will need to crunch the numbers and make the best informed decision they can despite the uncertainty. Deadline: December 31, 2010. Below are the 2010 tax brackets. My apologies for format and leaving off head of household. Exemptions remain the same, as does the standard deduction for all but head of household ($50 increase).

Tax Brackets as per Bank Rate
Married Filing Jointly Single
10% Bracket $0 – $16,750 $0 – $8,375
15% Bracket $16,750 – $68,000 $8,375 – $34,000
25% Bracket $68,000 – $137,300 $34,000 – $82,400
28% Bracket $137,300 – $209,250 $82,400 – $171,850
33% Bracket $209,250 – $373,650 $171,850 – $373,650
35% Bracket Over $373,650 Over $373,650

4. Run a final calculation for estimated taxes owed at both the Federal and State levels and pay up possible shortage. Baruch Hashem this year was better than expected. During the 4th quarter, in anticipation of the "Bush Tax Cuts" expiring, I worked to push income into 2010. So, now it is time to make sure that we are paid up by January 15, 2011.

5. Figure out how to spend down the excess funds in the Flex Spending Account. I've never overfunded an FSA, but I can't complain this year because the reason for the excess funds were all positive. Nevertheless, the money is there for the spending and I need to put together a plan. Over the counter reimbursements will end in 2011. So, while I can deal with dental appointments, visions appointments, new prescription glasses or sunglasses purchases, and physicals in 2011, if I plan to stock up on a few OTC medications, I better plan a trip to the drug store soon. Deadline: March 15, 2011. But, I prefer to be on the safe side, so the earlier the better.

6. Fund the Coverdell Plans by the end of the calendar year. These plans might also be called IRAS, but their funding schedule is different. but my bank seems confused as to the deadline which a reader pointed out should be April 15, 2011. Deadline: December 31, 2010.

7. Fund IRA or ROTH IRA. Deadline: April 15, 2011.

8. File that growing stack of papers, make sure tax letters are on file for any donation over $250. I'm certain this note just pertains to me. Certainly everyone else has kept to their schedule of daily or weekly filing (smiles). Deadline: Before putting the tax return in the mailbox.

Other tax payers might be interested in re-evaulating the portfolios, selling loosing stock, writing up a new will, making sure their insurance coverage is adequate, or creating a new budget and financial goals. My list is far more barebones, but should keep me busy enough.


Meag said...

You wouldn't happen to know, off the top of your head, if there's a way for a nonresident alien and a US citizen to file a joint, married return? Or when he has to be resident to be able to file a resident alien tax form? My husband won't be resident until early next year.

Julie said...

While we are asking questions, what is the status of the Coverdells? Are they part of the Bush tax cuts that will continue for the next two years? Will we still be able to use them to fund private school education K-12? Does the old limit still apply?

Anonymous said...

Don't forget to look into converting to Roth.

Orthonomics said...

Anonymous-Good point. I was dealing with this through my work just two weeks ago.

Here I was making a list for our family. We aren't convertig any more old IRAs because we don't want to hit credit phase outs, which will quickly take away any possible benefit.

Julie-I'm making a post.

meag-Will try to get back to you if I have time.

Anonymous said...

For Meag....

From IRS 1040 page 15 instructions

Nonresident aliens and dual-status aliens. Generally, a husband and wife cannot file a joint return if either spouse is a nonresident alien at any time during the year. However, if you were a nonresident alien or a dual-status alien and were married to a U.S. citizen or resident alien at the end of 2009 you may elect to be treated as a resident alien and file a joint return. See Pub. 519 for details.

Anonymous said...

In terms of converting to a Roth IRA/401(k):

Is the benefit only for people who are in lower income brackets? In other words, if you're already in a high bracket, there's no point in converting, right?

Orthonomics said...

Those in high income tax brackets were not able to convert in the past. 2010 the limits were lifted. Planners and accountants are mixed on the actual benefit of converting. Generally those with growing income and growing marginal rates will benefit during retirement. Each plan, 401k, ROTH, and IRA have interesting provisions that make them more attractive. I tend to like a little (or a lot!) of everything because of the various provisions.

Anonymous said...

I think you might have mis-stated the deadline for Coverdell Contributions as 12/31.

On a different website I found the following: "The ESA contribution limit is $2,000 per year and the contribution deadline is the tax filing date for that year, not including extensions."

So it seems like you can contribute until 4/15/11.

Is that correct?

Anonymous said...

Hi, I was wondering how charity donations work, i make about 20 thousand a year and was told that the amount of tzedaka i give wouldn't make a difference to my tax return.
I give double ma'aser,about 4000, always to tax deductable places and was wondering if i was told wrong and i should put it in my tax return

JS said...

Charitable donations are "below the line" (after computing AGI) and therefore must be larger than the standard deduction for it to make sense to choose to itemize over taking the standard deduction.

The bigger question is why is someone with an income of only $20k giving away $4k?

Orthonomics said...

Anonymous-It appears you are correct. But in the past I recall the bank docs to read differently. I will note.

Orthonomics said...

Without knowing your filing status (single, married jointly) and what your other itemized deductions are (amount of property tax, mortgage interest, state and local income tax paid), I can't answer accurately. If all of those items don't add up to $5700 (sinle) or $11,400 married, you probably don't benefit from itemization.

I'm curious why you give $4000 on a $20,000 (after tax?) income.

Anonymous said...

Sorry I should have given more info. I'm single, sharing an apartment with friends so I only pay $400 a month. I don't have many fixed expenses cellphone and internet but thats pretty much it. Everything else I budget according to what I have.
I am not a spender and I really enjoy couponing so my food and toiletry expenses are low, I eat out almost every shabbos and as a teacher I also eat breakfast and sometimes lunch in school.
I try to save $500 a month, i usually put it in savings straight away and then give Ma'aser. I give double (chomesh) pretty much because this is probably the only time in my life that I will be able to give this much.
I don't know how much tax i give (i could probably check) but last year from my two jobs i got back about 600 in my tax return.

Orthonomics said...

You probably aren't in itemizing territory. But, always track your state/local withholdings because if you continue to give so generously and as your income rises, you will eventually benefit from itemization.

JS said...


Not to get into a religious debate, but you said "I give double (chomesh) pretty much because this is probably the only time in my life that I will be able to give this much." It's also likely to be the only time in your life when you can save so easily and build up for your future so easily.

I don't want to get into the halacha of tzedaka, but it seems short-sighted to me to give a lot now when it is likely that if you held on to the money your financial picture would be better in the future thereby allowing you to give more in the future.

In short, for example, an extra $1k-$2k now for say 2-3 years as opposed to an extra $250-$500 for life after 5 or so years.

Anonymous said...

Are you saying that I should save more? I put almost a quarter of my paycheck into savings and it's slowly growing or are you thinking more of investing?
My opinion is based on my limited experience of friends and family who get married have kids and generally don't have extra money at the end of the month.
Since at this stage of my life i do, i tend to give it away.
Yes I will make more money later on in life but i will also have much more expenses.
I was planning on looking into starting an IRA (my job doesn't offer one) next year but have no idea how to, is there a website or something that i can find out more info?

Miami Al said...


I think it's great that you are being generous during the phase that you can. That said, yes, you should probably save more if you can. An IRA is individual, you can open one with an online broker (although, easiest would be something like a Vanguard IRA, they have great low cost funds), and since you don't need the tax write-off, do a Roth.

A though about double Masser - I firmly believe in the economic model of paying yourself first. After taking Masser, which really is an expense, make sure that you shore up your finances. Make sure you aren't carrying debts that you can avoid, etc.

I think that it is laudable that you are giving more, it definitely gets harder. I just suggest you make certain that you "can afford it," not just seeming like you "can afford it."

Sounds like you are on to a great start!

Dovy said...

>>I give double (chomesh) pretty much because this is probably the only time in my life that I will be able to give this much.<<

Don't know about the wisdom if it, but I found myself thinking, "Who is like Your people, Israel?"

Anonymous said...

Anon 5:26: Good for you. It is very easy to open an IRA. For information, I suggest that you go to the Fidelity and Vanguard websites, call their customer service number and ask to speak with someone about how to open an IRA and the investment options. Both of them have some good low cost funds. My spouse and I have IRA's with both of them and we have set up automatic monthly payments from our checking account into the IRAs. I strongly suggest a Roth IRA since you don't need the deduction. If you put in just $5,000 now, it could be $80,000 tax free when you retire in 40 years. Start investing in retirement accounts while you are young so you get the benefit of long term compounding. (I wish I'd done that 25 years ago.)

JS said...


What I'm saying is that small things now can have a big impact later. Above someone mentioned that $5k now saved in retirement will equal $80k later in life. That's just one example. That's an example of a small thing having a positive impact later.

But, small things can also have really bad consequences if you're not adequately prepared. For example, you only have $500 in savings and your car that you need for work breaks down costing you $1k. You blow through your savings and take on $500 in credit card debt. That debt snowballs as other expenses creep up and before you know it you can't keep up and you end up needing tzedaka.

All I'm saying is make sure you've got everything taken care of on your end. Think big picture. It's great to give tzedaka now very generously, but it's possible that doing so may make you unable to give much later in life or worse, may make you the recipient of tzedaka.

Personally, I'd rather get my ducks in a row and give less now to at the very least make sure I never need tzedaka and hopefully be able to give more later. A better goal, to me, is to set things up to give more each year, not to just give a bunch now.

Ezzie said...

Here's another good Q for you - the agency my wife works transitioned over all their therapists from 1099 to W-2 at the beginning of the new school year, noting (IIRC) a change in the law. Think that it really should apply going back to the beginning of 2010?

Ezzie said...

Correction: They said it was as of 7/1 and said it was due to a Board of Ed. regulation.

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