LOS ANGELES – On April 16 and 17, Intuit processed about 3 million electronic returns through its TurboTax, Lacerte and ProSeries products. The deluge caused intense delays and server problems.
So many taxpayers and tax preparers were affected that the IRS stepped in to provide two extra days for those taxpayers trying to e-file tax returns or extensions. Were you affected?
Don't worry. You can expect IRS to waive your penalties if you re-filed by April 19 or, according to the TurboTax Web site, Intuit will pay penalties and interest incurred.
What do we learn from this?
Three things, really.
The IRS can move quickly when an emergency comes up. In fact, the IRS issued four notices between April 16 and April 18 providing extra filing time for some taxpayers. Pretty nifty response time.
Great marketing campaigns can bring disastrous results. Even with servers designed to deliver over 150 percent of projected capacity, floods of customers using the system will bring it down. Remember this when it comes to your business or your employer's marketing campaigns. Do you really have the capacity to field the results of a successful campaign? And what can you learn?
You may want to re-think your tax filing and tax planning strategy for next year. If you had filed your tax return or extension just a couple of days early, you wouldn't have been caught in the e-storm.
Doing better in 2007
So, how can you make 2007 a better tax year?
Look at your brokerage accounts and do some planning to balance your taxable gains and losses for the year. Before you can do that, you have to update your basis on your securities.
Jon Liu, presiddent of Firstrade Securities, recommends investors directly download information from their brokerage site. With most brokers offering online access, you can do your own research into splits, reinvested dividends, sales, fees, etc.
If you have long-term holdings, or mutual funds to which you make deposits on a regular basis, you may need your broker's help to determine average costs, or accurate costs of shares you have already drawn or plan to draw. Start working with your brokers to get your accounts updated now, rather than during the tax season rush.
Women, get involved!
Lauren Coulston, who heads OppenheimerFunds' Women & Investing program says OppenheimerFund's recent research shows that men and women are sharing more of the household financial responsibilities than in the past.
Yet, the more critical financial responsibilities, such as investing for retirement, still are largely handled by the man of the household. It's time for both spouses to review their current financial situation and create a joint financial plan.
With women outliving men, nine out of ten women will be solely responsible for their household finances at some point during their lives.
Coulston offers five steps to a holistic financial view:
Understand your net worth. Evaluate your income and spending to see if you could have spent less and saved more. Figure out your income, liabilities (mortgage, credit card debt and other loans), and projected expenses for the year as a first step in getting your financial house in order. Then, agree on some healthy changes. Discuss your goals for today and tomorrow. Ensure that you have enough income to meet your present financial needs. Develop a budget to cover your short-term needs over the next three to six months. Look to the near future for funds you may need to start or grow a business, pay for education, a wedding, renovations or home buying. Lastly, establish the goals you both hope to achieve in five or more years. Rebalance your investments. Looking at all your bank, investment, and retirement statements, do you need to make any changes? For example, if one asset class has performed exceptionally well, it may have grown to represent a disproportionate percentage of your total portfolio. You may want to sell some of those investments and reallocate the proceeds to maintain sector diversification. Assess whether your needs have changed. If you are approaching retirement, you may need to apportion assets to income-oriented investments vs. long-term growth investments. Use your tax refund wisely. Make it part of your plan. Take 10 percent and spend it on whatever you want, but use the rest to pay down debt, set up an emergency fund, or make an extra payment to your IRA or retirement savings plan. Schedule time with your financial adviser. Keep your tax and financial plan and your investment program on track. If you don't have an adviser, find one. Talk to friends, family members and colleagues for recommendations, or ask your lawyer or accountant. Or search for a certified financial planner at the Certified Financial Planner Board of Standards Web site. Visit the Web site.
Saving for retirement
Self-employed business owners making substantial profits should be stashing money into defined-benefit plans, according to Karen Shapiro, chief executive of Dedicated DB in San Francisco. In 2007, the contribution limit is $180,000 compared with only $45,000 for a SEP-IRA. Aside from the substantial tax savings, five to ten years of contributions, along with their tax-free earnings, can generate enough savings for you to live quite well after retirement.
Defined-benefit plans are often overlooked as investment options due to their seeming complexity and rigid contributions requirements. But with the right planning and timing of contributions, you can overcome all the pitfalls.
After all, investing $180,000 tax-free at only 7 percent for 10 years, you'd have over $2.8 million when you're ready to retire. Ten years from now, you should have no trouble generating 10 percent interest on your investments, giving you over $280,000 a year when you retire. And that's without even touching your principal.
That $2.8 million in the account compares with the $710,000 you would have after investing the maximum SEP-IRA contribution of $45,000 for 10 years.
When you're making more money than you need to live on, and just don't get around to doing any retirement planning beyond your SEP-IRA, you end up paying taxes on an extra $135,000 per year. That costs you about $60,000 per year in IRS and state taxes - just thrown away.
Take the time to do your financial Spring cleaning - and spruce up your investments and tax plan.
Eva Rosenberg is the founder of TaxMama.com and an enrolled agent licensed to represent taxpayers before the IRS. She is the author of the book, "Small Business Taxes Made Easy." Reach her at email@example.com.
Copyright (c) 2007 MarketWatch, Inc.