Jan 12, 2017 4 min read

The start of a new year offers an opportunity to make changes that can enhance our financial lives as well as other aspects of life. You should not make a resolution just for the sake of doing it, but because you want to experience a real difference.

It has been said that only a fool would think you could keep acting the same way and expect different results. If you are concerned with certain areas and want a real change, you should develop an action plan to create the desired results.

Sometimes you already know some of the necessary changes and sometimes you need to improve your knowledge to better understand how to solve the problem. Commit to taking workshops in subjects you need to learn more about and don’t hesitate to ask questions of other people.

To try to measure your financial progress this year, why not calculate your net worth? Figure out the value of the things that you own and subtract the debts that you owe. Be fair in estimating values for things such as autos and your house. It is easier to add up any outstanding debts such as your mortgage, credit cards or car loans. Calculating net worth again at the end of the year will give you a good idea of how much progress you achieved.

Later this month, everyone will start receiving W-2s and 1099s that are necessary to calculate their income tax return. This will be the first year that people will be charged a penalty if they did not acquire health insurance. It is expected that many preparers will charge extra for this additional work. Be sure that you understand what your final return will cost you. Many people pay a large fee to get a refund loan when filing their taxes. The interest rate is very high and with electronic filing, you could get a refund in as soon as two weeks. Why pay a high fee?

Besides high preparation fees, many people make big mistakes that cost them extra taxes. I recently was asked about two such cases. In one case, someone sold a rental property that they had owned for a number of years. When they sold the property for a gain, the IRS wanted a large depreciation recapture. This is because they were allowed to write off a certain amount each year and subtract it off of their income. Since they were not even aware of this cost, they did not use any strategies which may have mitigated the fee.

To make matters worse, they took the money to pay the tax came out of a 401(k) account- which was all taxable on the withdrawal. Preplanning could have saved them a lot of money.

In another, someone lost their job and had their whole 401(k) sent to them. They did not move it into another qualified account, making it taxable.

You must be very careful how you handle qualified money, or you will incur a tax nightmare. Discuss your issues with a tax professional before you make a move. If it is qualified money, make sure you get proper advice.

The bottom line is that if your are not sure of something regarding your personal finances, do not be afraid to ask. It could save you a large amount of money.

Be proactive with your tax planning, not reactive.

Gary Boatman is a Monessen-based certified financial planner and author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

To submit columns on financial planning or investing, contact business editor Michael Bradwell at mbradwell@observer-reporter.com.