Last Minute Tax Moves
Here you are, several weeks into the new year, and you're fretting about the last-minute things you should have done before Dec. 31 to cut your 1999 tax bill. You could have written a check for your January mortgage payment to take advantage of deductions for mortgage interest and real estate taxes. Or you could have paid your estimated state income taxes that came due in January. But all's not lost. There are still many options you can use to pare what you'll owe Uncle Sam in Y2K--and afterward.
First off, you and your spouse should pay the maximum of $2,000 each into an individual retirement account. You have until the filing deadline of Monday, Apr. 17 (the 15th is a Saturday), to qualify for the deduction. If you pay into a Roth IRA, you don't get the break until you withdraw the money.
If you're self-employed and don't have ready cash to contribute for 1999 to your Simplified Employee Pension (SEP) plan, Paula Monroe, a Park City (Utah) tax accountant, suggests this strategy: File for an extension beyond Apr. 17 and postpone your complete filing until as late as the drop-dead date of Aug. 15. You must pay your tax with the extension, but you don't have to make the SEP payment until you actually submit your full 1040. Another tax saver for the self-employed: an increased deduction for health insurance premiums--60%, vs. 45% for 1998.
STOP-SMOKING PROGRAM. Indeed, taxpayers often don't realize the scope of deductions they can take for medical expenses. A new one is the cost for stop-smoking programs that you may have taken or paid for in the past three years. If you joined a program in 1999, you can deduct it now. To claim the expense from 1997 and 1998, you must file an amended return. But by doing so, you start the three-year statute of limitations on auditing your return all over again, says certified public accountant Robert Doyle of Spoor, Doyle & Associates in St. Petersburg.
Your total medical expenses will still have to exceed 7.5 % of your adjusted gross income (AGI) to be deductible. Other expenses that can contribute to the total are health-insurance premiums, transportation costs for going to the doctors, and costs of home renovations, such as ramps, for a person with a handicap.
The IRS phrase "miscellaneous deductions" encompasses write-offs you bundle to cut your taxes, but only if the total exceeds 2% of your AGI. Included are "unreimbursed business expenses," covering anything from the cost of using a cell phone or computer at home to travel expenses, as long as you can prove that these are business-related and that you haven't been reimbursed. To deduct the cost of a home computer, software, and phone line, Andrew Blackman, a CPA with the New York City firm of Shapiro & Lobel, suggests that you keep a log of who uses the computer, for how long, and for what purposes. You can deduct the portion of the cost that you can attribute to work or managing investments. You can also deduct part of the phone bill, if you have more than one line.
Costs for education programs that improve or maintain skills required in your profession also are deductible. One of Blackman's clients was able to deduct the cost of courses to become a periodontist because he already had a dental practice and was improving his skills. If he had just gotten his degree and wanted periodontal training without having practiced first, he could not have taken the deduction.
When estimating your 2000 tax liability, crunch the numbers early so you know what you owe and can fit the payments comfortably into your budget. That way, you can keep your spare cash invested as long as possible and send it to Uncle Sam at the last minute.