Let Your 2010 Taxes Prep You for 2011

By Eileen A.J. Connelly, AP Personal Finance Writer

NEW YORK (AP) — When you're done with your tax return, your first instinct may be to stash it in a drawer and put it out of your mind until next year.

That would be a mistake.

A smarter move would be to think of your return as a financial snapshot. By taking a close look at it now, you can use your return to help map out goals for the rest of the year. Ultimately you may be able to improve your financial standing and possibly reduce what you owe come April 15, 2011.

From the address label to the size of your refund, your tax return can provide a surprising number of prompts for shaping up your finances.

Here are six questions to consider:

1. Should you adjust your withholding?

The last number on your return will tell you whether you need to adjust the amount withheld from your paycheck.

If you're getting a fat refund, it's smart to reduce withholding so you receive that money during the year. If you view a refund as forced savings, it makes more sense to keep your money, rather than wait for the government to send it back. You won't earn much interest, given the current low-rate offers on savings, but you will have cash available for emergencies or for something fun, like a vacation fund. A $6,000 refund translates into $500 a month you could have control over.

If you're worried that you will spend any cash within reach, Jim Sharvin, an accountant in Torrance, Calif., suggests opening a new account and directing your employer to split off the extra money and deposit it there. If you can't designate multiple accounts for your pay, set up automatic transfers from your primary account.

On the flip side, if you're writing a big check each April, you might see that as an interest-free loan from the government. But if you pay your tax bill with a credit card or other loan, chances are you're better off paying as you go. Increase your withholding enough to cover your taxes and you won't have to find ways to pay next year.

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