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Tax planning: A strategy to managing your financial health

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Exercising regularly, eating healthy, and reducing stress are just a few fundamentals in managing your physical and mental health. But, what are you doing to manage your financial health?

According to Investopedia, financial health is the state of one’s personal financial situation and includes: the amount in savings, the amount of income spent on fixed and non-discretionary expenses, and a retirement savings plan. So, where do you begin to manage your financial health?

"The key to building one's financial success is to have your tax life in order,” says Jaye Maxx Alexander, a registered tax preparer and owner of J.M. Alexander, LLC, a tax consulting firm in Charlotte, North Carolina serving nearly 300 clients in 47 states.

Alexander, a 30-year tax professional, outlines the following steps to efficient tax planning:

1. Prepare the documentation.
Alexander recommends doing quarterly assessments of your finances. "The first quarter, you're preparing last year's taxes. The second quarter, you're reviewing your situation. The third quarter, you're starting to gather documentation. The fourth quarter, you're ready to file.”

He advises keeping pertinent financial records including business receipts, tax statements and medical bills for at least five years should the IRS select you for an audit.

2. Select the right tax preparer.
“Research your preparer,” says Alexander, citing the IRS Preparer Tax Identification Number (PTIN), a background check and continuing education as essential criteria for hiring a tax professional.

“Even though you have a preparer complete your returns, you, the tax payer, are liable because you signed the form saying that all of the information is correct.”

3. File on time.
“If you're earning under $50,000 a year, please don't wait,” says Alexander. Although he suggests there’s nothing wrong with filing an extension, which people do for various reasons, filing by April 15 should always be standard practice.

4. Invest and remove debt.
The IRS reports that in 2012 over 120 million individual tax return filers received $322 million in refunds. “Individuals that get healthy returns don't use that money to benefit themselves,” says Alexander. “They go on a consumer rampage and contribute to ‘Taxmas,’” a term referring to the post-Christmas holiday season when refunds are generally issued.

Instead, Alexander recommends investing 70 percent in an IRA or a municipal stock program and using 30 percent to pay off debt. “If you follow that plan, you will be successful,” he says.

Contact J.M. Alexander, LLC at 704-372-5990.

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