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Avoid Last-Minute Filing, And Garage
Sales
What are you doing the weekend of April 15th? Many people
will no doubt make a mad dash to the post office to mail their taxes on time, but this
year I've added another tax-filing step. After filling out the applicable forms,
calculating deductions, and signing the return -- I'm hosting a garage sale.
The couch might bring in a couple hundred dollars, the
dishes, maybe fifty bucks, and the kitchen table -- the place where I figured out my taxes
in the first place? - that's going real cheap.
If you've had the same thought this tax season, as you
start to wonder how you're going to pay your bill by the April 17 deadline, it's time to
educate yourself about your options for this year and prepare yourself for your 2000
taxes.
A great way to begin is to research your own possible tax
deductions. Becoming aware of how recent tax-law changes affect you can make a big
difference in how much you'll pay at next year's filing.
The 1997 Tax Payer Relief Act, legislation that
introduced new tax incentives and allowable deductions intended to benefit middle class
families with children, "…introduces a number of new targeted tax
incentives," according to a Deloitte & Touche review of the act.
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| See Deloitte & Touche's online
publication Promises Kept: The 1997 Tax Act, for the full
review |
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Further, on March 1, 2000, the House of Representatives
voted to repeal the Social Security earnings penalty, moving individuals who continue
working after receiving Social Security benefits one step closer to a tax break.
If you're already set up with tax preparation software,
more power to you. But if that's not your style, you might consider visiting a tax
professional who can help you prepare your return.
Plan On Being Early And Ready To Tell
Your Tax Story
If you are seeking professional tax help, be sure to
schedule an appointment now to avoid a last minute waiting list rush.
"New clients leaving important documents at
home," is something that Anna E. Hurlbut, a tax preparer at H&R Block in Half
Moon Bay, California, says is common.
"Some people show up with just their W2 forms, and
that's fine if you have a simple return," she said, adding that the first step in
eliminating some tax-time stress is coming to your appointment prepared. "The most
important thing to do, which you can start now for next year if you didn't do it in 1999,
is to keep a record."
This step involves knowing what kind of taxpayer you are.
Are you the head of a household? Do you own a business? Are you paying student loans? If
any of these apply to you, you could receive a tax deduction.
Hurlbut says that her clients regularly want to estimate
costs in order to take a deduction, but that instead of guessing, she advises they give
her a call later with the exact amount from their records.
What records should people bring to their first meeting?
Steve Carey, a certified public accountant located in the
Redwood City, California office of Pearson, De Prete CPAs & Advisors says:
"The key is, the more organized you are ahead of time,
the less organization your tax preparer does - and the process will cost less."
He added that most CPA offices also provide questionnaires
ahead of time, to ease the process of knowing what to bring.
Be Prepared For Your Preparer
- Prior-year tax returns, at least 1 year
- Dependent information, including elder and child care
- Income records, from work, pensions, unemployment, social
security
- Documentation from anything sold, including stock and real
estate
- Estimated tax payments (people without withholding)
- Distributions from partnerships, inheritances, and/or trusts
- Brokerage statements, paid interest and/or dividends records
- Casino winnings (establishment will send you a 1099 for
winnings over $600)
Carey also advised taxpayers to include every bit of income
they received for the year they're filing.
"If an external source files with the IRS that they
paid you income, it should be reported on your tax return. If there's a discrepancy
between what's been filed as paid to you, and what you state as income, the IRS will send
you a letter."
Documents You Should Keep
William Kirby, C.P.A., of Kirby and Mangini in San
Francisco, California also noted that clients like using a template to list information
regarding their tax story, but he prefers an interview.
"Many clients don't want to come in for a consultation
and would rather send in the tax questionnaires. I would rather not use these and meet the
client in person, including both parties of married couples. This way I can review their
current year's needs, prior tax returns, and note if there's anything unusual or any
changes for the new year's return."
Kirby advises his clients to keep all statements, canceled
checks, and written letters from charities documenting any donations over $250, and he
also addressed the specific situations that would merit attention:
"If a client exercised stock options, sold a home or
rental property, received an inheritance or won the state lottery, these are all things
that will show me not only what kind of return we'll be doing but also how meticulous a
recordkeeper the client is."
Keep Extensive Records Of Your Expenses
Taxpayers might want to expense personal business costs
such as: gifts, entertainment, transportation and lodging, auto miles, parking and tolls,
and miscellaneous expenses.
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"The most important thing to do,
which you can start now for next year if you didn't do it in 1999, is to keep a
record."
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| - Anna E. Hurlbut,
Tax Preparer at H&R Block |
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But in order to deduct these expenses, keeping statements,
canceled checks, and receipts is only part of the job. Keeping a journal, describing how
these expenses related to your job or business activities, is also required.
Taxpayers deducting business expenses can file
"actual" or "standard" deductions. Hurlbut explained that it may be
advantageous for small-business owners to opt for actual deductions if they believe these
costs will be above what the standard deduction allows.
"I recommend to my clients, especially if it's the
first year of their own business, they take the actual deduction so they have a clear idea
of how much their expenses will be. This means in their second year, they'll have a
clearer picture of whether or not the standard deduction is a good idea."
Common 1999 Deductions
How meticulous clients are, when it comes to either
business or personal record keeping, defines what forms they are eligible to file. For
example, if you made student loan payments, you'll receive Form 1098-E in the mail. This
form details the amount of interest that is tax deductible. Make sure you keep the
documentation.
Form 8863, used to determine eligibility for, and the
amount of education credits a taxpayer can claim, applies to higher education expenses
that may be tax deductible -- paid tuition and fees that qualify for the IRS' aptly named
Qualified Education Expenses.
If you made money in 1999 that didn't have federal or state
withholding, you could receive a major sting around tax time. However, if this income was
from a personal business, you may have tax-deduction avenues if you kept stringent
records.
Find Your Own Tax Story
To obtain more information on these deductions and their
applicable IRS Forms, log onto: http://www.irs.gov/forms_pubs/findfiles.html and enter the
appropriate key words for your search.
These tax-deductible events must be documented with dated
receipts. And, don't forget that taxable events such as capital gains or your state's
alternative minimum tax can tip the taxing scales in Uncle Sam's favor.
If you have any questions regarding these forms or your
eligibility on any specific deduction, call the IRS toll free at 800-829-1040, or log on
to their Web site at: www.irs.gov
Another option is to consult an accountant or use a
tax-preparing service. Again, be sure to schedule an appointment as soon as possible.
Choose Your Own Way To File
There are now many ways to file your tax return, from
consulting reputable certified professional accountants or tax preparers, to e-filing over
the Internet or visiting a specialty tax-preparation business. Most are tailored as a
one-stop-shopping experience that usually takes an hour. With these services, taxpayers
can either have their forms printed out to send via regular mail or filed electronically.
These businesses do charge by the form, so the cost of filing will depend upon how complex
your return is. Fortunately, both methods are quite inexpensive.
If you don't want to write a check to cover your 1999 tax
bill, the IRS also takes credit-card payments and has a direct-debit program.
By planning ahead, keeping diligent records and staying
abreast of possible tax breaks, you can avoid the final filing step I'm taking this year:
publishing the contents of my garage and the quality of my lemonade in this April 16th's
Sunday paper.
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