Personal Business: PREPARATION
LAST-MINUTE HINTS FOR TAXPAYERS
Sure, you could almost do your taxes in your sleep. Gather the papers, fill out your accountant's tax organizer, and then all you have to do is sign the 1040 Form. Nevertheless, it's better to get ready for Apr. 15 with your eyes open.
For those with self-employment income, there's still time to do some maneuvering with retirement plans. If you opened a Keogh before Jan. 1, you can feed in up to 25% of your self-employment earnings and get a 1990 deduction.
Individual retirement accounts also deserve some attention. True, there's no deduction anymore if you're a joint filer covered by a company pension plan, with adjusted gross income (AGI) of $50,000 or more. But it might be time to remind a dependent offspring about the benefits. "Say your daughter is in college and made $5,250 from a part-time job," posits Eli Warach, a senior officer of tax-book publisher Maxwell Macmillan. Your daughter gets a $3,250 standard deduction for 1990 and would pay tax on the remaining $2,000. Warach suggests that "she put the $2,000 in an IRA." She would pay no tax. And as long as she's under 24, and you're contributing more than half her support, you still get her $2,050 personal exemption on your return.
TRAVEL LOG. While the 1040 Form went to press too early to include this info, the exclusions for employer-paid education and group legal benefits will continue through 1991, notes the U. S. Master Tax Guide from Commerce Clearing House. (The exclusions were originally set to expire last Sept. 30.) Congress also has extended the business deduction for 25% of a self-employed's health-insurance premiums. And for the first time, half of self-employment tax is deductible in arriving at AGI.
The Internal Revenue Service isn't quite as rigid about commuting costs as it once was. If a taxpayer has at least one regular place of business, then daily transportation expenses for commuting between home and a "temporary work location" can be deducted--even if it's in the same metropolitan area, according to the Arthur Young Tax Guide 1991. Business mileage deductions no longer drop to a lower rate after 15,000 miles; the 1990 rate is a straight 26~ cents a mile. Other venerable deductions are all but dead for 1990, however. Only 10% of the personal interest on credit-card bills is deductible. Similarly, if you paid more interest financing the purchase of securities than they earned you, only $1,000 of the excess remains deductible on 1990 returns.
A number of deductions that have been there all along are easy to overlook. Say you or your spouse did volunteer work for a charity. The law lets you tack 12~ a mile, plus tolls and parking fees, onto your itemized deduction for charitable contributions. Documentation of the volunteer activity itself might be enough backup, but it's best to keep a mileage log, advises Eileen O'Connor of accountants Grant Thornton: "The key is whether an examining revenue agent will believe you."
To be sure that your car delivers all that's coming to you in the way of write-offs, O'Connor suggests keeping track of auto-mileage expenses that the family runs up for medical care, too. They're deductible at 9~ a mile, but only when you can add them to total uninsured medical bills that exceed the deductibility threshold, 7.5% of AGI.
CLOSE WATCH. Taking care with each 1099 Form is increasingly critical to avoiding future hassles with the IRS, cautions Gerald Portney of accountants KPMG Peat Marwick. Although "it will take over a year" for the IRS to get to it, the agency now is computer-matching nearly all dividend and interest reports from banks, brokers, and companies with the amounts and names entered on 1040s. Forgetting one of those flimsy forms can subject you to much stiffer penalties than a few years ago, he adds.
Don't leave out any Social Security numbers, either. Even your two-year-old's number must show on a 1990 return, or the IRS could fine you $50. So far, it has limited itself to gentle letters, says spokesman Henry Holmes, but the option of getting tough is still open. And closely review what your preparer produces before you sign. The IRS holds the taxpayer responsible for his or her return--even if it was a busy pro who made an error. TAKE A PEEK AT
YOUR PEERS' DEDUCTIONS
Here are average itemized deductions by income range. Larger ones are more apt
to catch the eye of the IRS. (Note: Only returns claiming such deductions count
toward the averages)
Income range* Medical ** Taxes Charity Interest
$40,000--$50,000 $3,079 $2,844 $1,282 $5,153
50,000--75,000 4,281 3,853 1,524 6,129
75,000--100,000 5,580 5,659 2,083 8,562
100,000--200,000 12,967 8,725 3,402 11,507
200,000--500,000 39,542 18,432 6,913 17,538
*Based on adjusted gross income for 1988, when consumer interest was 40%
vs. only 10% deductible for 1990
**Can include related items such as transportation, nursing-home care for
parents, physician-ordered installation and upkeep of a swimming pool,
elevator, and the like
DATA: U.S. MASTER TAX GUIDE, INTERNAL REVENUE SERVICE
EDITED BY TROY SEGAL D. J.