Money Matters: When and how to get organized

Organization, the word is used often and most of us know why it is beneficial. But, putting it into practice is not always the easiest thing to do. While you may know the reasons why this would be beneficial, I would like to touch on a few of the specifics relating to your finances.

No one wants to waste money. When it comes to your finances, a lack of organization can be one of the greatest causes for waste. This time of year, you are right in the middle of filing your tax return for last year. While many wait to file for all sorts of reasons, for some I am sure it is because they failed to organize their data making it possible to file an early return. And since the deadline is no secret, April 15th, most I would imagine throw up their hands and file what they have gathered. Doing so in many cases may result in a larger liability than it would be had they been 'organized'.

For each deductible expense lost and not taken on a return, the typical filer now has spent an additional fifteen or as much as thirty cents per dollar of expense in added taxes being paid. For the small business owner, the amount can increase to forty-five cents per dollar of extra taxes. Tracking all expenditures and then filing them in such a way they can be properly reported will prove very beneficial.

For investors, tracking the purchase of their investments can be a daunting task. With the improved technology at most investment houses and fund companies, many believe they no longer have to bother with this step. That is far from the truth. Investments today tend to last years if not decades. And over that time period, you may move your account between investment companies or investment advisors several occasions. During those transfers, the opportunity for the original purchase information as well as the years of reinvested dividends can be lost. The cost to recover the information is an expense most would be unwilling to pay, and thus additional time goes by. Until the need to sell comes, the looming task hides away in the closet somewhere. It is up to the investor to prove the cost basis in their investment and if you are unable to do so, the results may not be appealing.

Researching the basis for most stocks is not too hard. With access to the Internet, finding historical prices is pretty easy. The problem becomes when the stock or mutual fund had the dividends reinvested. Each payment of dividends is taxed when paid and as such, the additional shares acquired through reinvestment increases to the purchase basis of the shares. While it may be easy to determine the basis for a recent purchase, tracking the basis for a holding that has been in your portfolio multiple years becomes very difficult. In some cases, the holding may have had the dividends reinvested for a while and then through a brokerage change or other causes, the dividends may have been paid in cash. These changes only toughen the ability to calculate the basis with any accuracy. And without accurate information, the ability to file an accurate tax return and be certain of only paying your fair share is limited.

If you believe your mutual fund company has the basis for your account, you may want to confirm that information rather than taking a chance. Recordkeeping upgrades have occurred and did so several years back. However, if your position in the fund pre-dates their upgrades, they may not have the complete basis information. When you sell, you may be creating a major surprise at tax time.

While all of this is true for every investor, it is particularly true for the retired investor. There may be a time when you are no longer able to assist your spouse in completing the tax return or know in advance which holding would be the best to sell for tax purposes. While few are willing to admit this may ever become a problem for themselves, it can and may happen. Taking time today to document your taxable accounts and ensure the basis information for each holding is recorded will be appreciated by your spouse and loved ones.

Getting organized can pay great dividends, both financially as well as a reduction in stress when faced with major decisions. If you need assistance in getting your financial records organized, you should contact QFC or other qualified investment advisors.


Would you like a response to a financial question? Send your question to Doug Horn, 115 W. Broadway, Maryville, TN 37801. Be sure to mark your envelope Money Matters.

Doug Horn, CFP, is an area financial planner with more than 24 years financial experience and founder of Quality Financial Concepts, located in downtown Maryville on Broadway.

Doug Horn, CFP, Registered Investment Advisor in Tennessee and Texas and Registered Principal, Branch Office of and Securities offered through CUE Financial, Member FINRA, SIPC.

© 2008 All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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