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BUSINESS BASICS CHANNELS 
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Goodbye Christmas, Well, Christmas is over. The presents are all put away or broken. The credit card bills are camping on your doorstep. You open your mailbox, and there is that little card that reminds you that Uncle Sam is looking to settle up accounts with you. Well, here are some ideas to leave a little more in your pockets and a little less in Uncle Sam’s. Certain studies have shown that the average individual works about 5 months a year just to pay taxes of all kinds -Federal income taxes, state income taxes, sales taxes, property taxes, etc. Each person has the right and responsibility to arrange their affairs to pay the least amount of tax possible. You are asking, "HOW DO WE DO IT?" Well, the first step is to start gathering your records: W-2 forms, 1099s from banks, brokerage houses, mortgage interest statements, etc. Now if you are like most people, your 1999 stuff will be scattered all over your house or stuck in some drawer under the phone book and a pile of old bills. So resolve in 2000 to clean up your act and start to get organized NOW. Set up a file to capture things you can deduct on your taxes. Well, once you get your 1999 stuff all organized and ready to work with, you have to decide if you want to tackle the job yourself, or hire someone else to do it for you. Of course, I think no one should prepare their own taxes, but that is a personal bias. Today, with the great number of available software programs, many people are capable of doing their own taxes. Whether you use a preparer or do it yourself, here are some basic tips to help. Make sure that you report carefully all interest and dividend items. Credit Union “dividends” are really interest and reportable on the top part of the Schedule B. Dividends can consist of several items such as ordinary income, long term capital gain, U.S. Government interest, state or other municipal interest. Read your instructions carefully. If you bought a mutual fund or stock and have the dividends reinvested, remember that those dividends add to the basis and reduce your gain when you sell. Keep those year-end statements on your investments for as long as you have them. If you have long term capital gains, remember that they can be taxed at either 10% or 20%, depending on your tax bracket. The rest of your income is taxed as usual, but consult Schedule D to see if you can save some tax dollars. If you have rental properties, make sure you pick up travel costs, telephone, postage and other expenses you might not think of ordinarily. Of course, interest, taxes, insurance, repairs, home owners fees are always deductible for a rental. If you are self-employed, it’s not too late to fund a retirement plan. An SEP can still be set up for 1999, and you can put money into it based on your net income after expenses, and it can be funded up to the due date of the tax return including extensions. For once, procrastination has a benefit. If you aren’t self employed, you might consider the IRA option. There are deductible IRAs, nondeductible IRAs, Roth IRAs, etc. Which one is right for you depends on your income level and whether you and your spouse have pension coverage at work. Check with a registered investment advisor. They can help you decide which one is right for you. Of course, so can your friendly tax preparer, but if you are doing taxes yourself, you have to get your help from wherever you can get it. Speaking of help, the IRS has a nice website with lots of information, plus you can download and print forms you need. They even have a "filled in forms" option where you can fill them in online and print them out. But with a tax program, you probably won’t need it. The address is http://www.IRS.gov. Itemized deductions--- dig for them. Medical expenses count only if you have enough. State and local income taxes are deductible. Don’t forget that if you had to pay the state last year, you get a deduction this year. Real estate taxes are deductible too, but watch if you bought your home in 1999. Depending on what state you live in, you might not get a deduction. Mortgage interest is a big one. If you bought a house, you can write off the points, even if the seller paid them. Second mortgages and home equity loans are deductible too (with certain limits). If you borrowed money to play the stock market or to buy into a business, you can claim a deduction for investment interest, but only the extent of investment earnings. Sounds tough but it’s pretty straight forward. Charitable contributions are deductible. Donations of money in excess of $250 in one donation require a special receipt from your charity, but you should get a receipt from all your charities anyway. If you donated stock, you get to deduct the fair market value of the stock. If you donated clothes, appliances or other non-cash items, you get a deduction too, but if they add up to more than $ 500, you have to fill out more forms. But the extra deduction is worth the time. Miscellaneous expenses--oh, what a category! Employee business expenses fit here. Drive your car, take clients out, buy your own office supplies and the company doesn’t reimburse you, then you can deduct them. IRA fees, investment advisor fees, and of course, my favorite, TAX PREPARATION FEES (you did remember to pay your tax preparer before December 31, didn’t you?) are all deductible. The bad news is that you have to add up all these little gems and lop off the first 2% of your adjusted gross income. If there is anything left, you get to deduct it. If you are a gambler and hit some big ones, you can deduct those losses to the extent of winnings. The 2% limitation discussed above does not apply. Well, I think I am out of space. Next time, we can talk about tax credits and other lovely things. Happy tax season and remember, be kind to your CPA. He or she is human too! |
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