The Tax Man Cometh: That Doesn't Mean You Have to Give Him Your Shirt

Because of Emancipation Day in the District of Columbia, the 2011 tax filing deadline is April 18.  For those who haven’t yet filed their returns, there still is time to be able to make deductible 2010 Traditional IRA contributions until April 18.

Should you file yourself or hire a professional?

According to the IRS, last year 21 percent of tax returns were self-prepared on tax software, 17 percent were prepared on paper and slightly more than 60 percent of tax-filers hired a professional to prepare their taxes.  While doing it yourself will definitely save you money on your tax preparation, a professional may be able to get you more of a refund and, more importantly, give you tax-planning advice for future returns.  

If your income was less than $58,000, you may be eligible to use the IRS’ free tax software program called “Free File.”  Go to the official website www.irs.gov and look for the “Free File” tab.

The Three Most Forgotten Deductions

While there is a myriad of tax deductions and credits available, three of the most common and forgotten deductions are mileage, non-cash charitable contributions and the home office deductions:

• The IRS allows deductions for business driving at $0.50/mile, with the allowance for charitable service $0.14/mile and moving or medical travel allowance at $0.165/mile.  If you incur bona fide travel for your work, your charitable volunteer work or your doctor’s appointments these miles may be tax deductible.
  • Examples of local volunteer work may be at the , Galaxy Soccer at or PTA work
• Donations of clothing, furniture or other household goods may be deductible if they are given to a bona fide 501(c)3 organization.  You must provide an itemized receipt from the donee of the items you have given with a “fair value” attached to each item.  These value guidelines are posted by the Salvation Army at the website http://www.salvationarmysouth.org/valueguide.htm
  • Recipients may be the , Cobb Street Ministries, or the Sweetwater C.A.M.P.
• The IRS allows you to write off a portion of your utility or home services bills if you have a “recognized” home office.  The rules are very tight on this deduction, but if you have a legitimate home-based business with a “profit motive,” you may be able to claim this deduction.  For example, if you conduct business in a 10’x10’ (100 square feet) room of your 2,000 square foot house, you could deduct 100/2,000 or 5 percent of your house as a home office.  You could then deduct up to 5 percent of the utility and household service bills.  However, it is imperative that this space is used only for business.

If you think you may qualify for one of these deductions but are unsure, it may pay to consult a tax professional.

Personal financial and recordkeeping tips:

The following are some tips that I’ve come across over the years that may be of service to you for your personal record keeping:

• If you have changed your name last through marriage or divorce you should contact the Social Security Administration to have your new legal name attached to your social security number.  The IRS may not recognize you until you do.
• The IRS also recommends that you keep copies of your W-2 information for calculation purposes until you begin to draw Social Security benefits.
• The IRS recommends that you keep your tax records for three to seven years, depending upon your situation.  If you claim home office deduction and you depreciate the value of your house you should keep these forms until three to seven years after you sell your depreciated house.
• If you are audited by the IRS, only bring copies of records for the year that you are audited.  By bringing additional information for other tax years may expand the audit for which you are currently involved.

Things to do now for 2011:

Organize your records now for your tax preparer for next year.  Your system doesn’t need to be elaborate. An accordion file or labeled folders are all you need.  They have plenty at on the East West Connector.  Pay particular care to keep your medical expenses and mileage to the provider’s office or health care center.  Also keep records of your charitable contributions that are made by cash and donated goods.  A lot of clients overlook the mileage that they incur to give their tithes or talents to their charitable organization(s).  All of these items may be tax-deductible, so consult your tax preparer.

IRS Circular 230 Disclaimer:  To ensure compliance with IRS Circular 230, we inform you that any tax advice contained in our communication was not intended or written to be used, and cannot be used, by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalty or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.