Tax Time Is Over
Your return's been filed. Refund's been spent. You can relax and forget about taxes for another year.
Not so fast! It takes IRS months to sort things out. As records from across America are sifted, some problems inevitably appear. By accident someone changed a digit of a Social Security Number - and now it matches yours. Or the interest reported by your bank doesn't jive with your tax return. Somewhere a few refund checks got lost. More than 130 million tax returns were sent to IRS. There are bound to be problems.
Refund Late? The official line at IRS says they can't check until 10 weeks after you filed, but often they are much faster. There's automated help at 1-800-829-4477. A Refund Hotline is at 1-800-829-1954. The IRS website (www.irs.gov) has a "Where's My Refund?" link.
Uh-Oh - an IRS Letter! If you get a letter from IRS call me. The letters can be confusing. Don't risk making an even bigger mess - I'll be glad to handle it.
Will You Be Audited? There's no sure way to know. Most audits are simple. IRS computers compare returns with W-2s and records from banks and brokers. Most audits deal with this matching. A letter is sent to question the issue.
You probably picture an audit as a face-to-face meeting with an IRS employee who asks lots of questions. IRS calls any questioning of your return an "audit." Mark Everson, IRS Commissioner, says in 2004 "audits" of high-income taxpayers were up 40 over 2003. Sounds scary. There were 195,200 "audits" of folks with $100,000 or more of income. But 94 of the "audits" were simply the letters I mentioned. Another look at the figures: for every 12,900 returns with $100,000 or more of income there were 190 "audits." However, 178 were letters. Only 12 of the 12,900 returns had a face-to-face meeting. Not bad odds!
Protect Your Records. For now, simply put your return, records, receipts, and cancelled checks in a safe place. You might need to dig them out, but the chance is slim.
Older Records. It's a good idea to keep tax returns indefinitely. Also, keep records of investments and properties you still own. Other records - cancelled checks, receipts, bank statements, etc. - keep five years' worth of these. Destroy or shred any older records.
Planning For 2005
It's never too early to think about your next tax return. Some advance planning might put extra dollars into your pocket. Here are some of the key changes in store for 2005.
Standard Deduction goes up to $5,000 for a single filer, $10,000 for a couple, and $7,300 for ahead of household. The personal exemptions will be $3,200. This means a single filer pays no tax until income reaches $8,200. For a couple it's $16,400. If you'll reach age 65 or older this year, single filers add $1,250, joint filers add $1,000 for each spouse who is 65 or older.
Mileage Deductions. If you drive for your job, business, or rental property you may claim 40'/20 per mile. For most folks this is the simplest way to get your deduction. Beware - IRS likes to audit these claims. You are advised to keep records of activity and mileage.
Retirement Savings can be higher in 2005.
- 40 l(k),403(b), and 457 plans- defer up to $14,000 ($18,000 if you will be 50 or older by end of year).
- IRA or Roth IRA - up to $4,000 ($4,500 for age 50 or older).
- Self-employed SEP or Keogh - you may contribute up to $42,000 if income is high enough.
- SIMPLE plan - defer up to $10,000 ($12,000 for age 50 or older).
Child Tax Credit stays at $1,000. Any dependent child who is not age 17 by end of 2005 reduces your tax bill by $1,000. The credit begins to phase out for couples if income reaches $110,000 (for single filers it's $75,000).
Sales Tax vs. Income Tax. This was a surprise to all of us in 2004. If you live in a state with no sales tax, skip this. For the rest of you, 2005 is the last year for this choice. You have a choice - deduct the income tax you pay or your sales taxes you pay. For sales tax we use tables that give average sales data for each state. Simpler than keeping receipts.
Saving receipts is not likely to give a higher figure. However, we can increase the table amount if you buy a motor vehicle, boat, or airplane. The only other added item is for sales tax on building materials if you build or improve your home. This does not include tax on appliances or furnishings for the home.
Other Changes are minor for most folks. Capital gain rates are the same. Qualified Dividends still get the favorable capital gains rate. Tax brackets are indexed for inflation.
Call Me For Help with new items - family changes, large chage of income, a move, hob change or new investments.
I understand the tax laws. i'd like to help you cut your tax bill as much as possible. Next February may be too late!
Tips For You
Vehicle Donations - New Rules. Donating a vehicle to charity is not the game it once was. For 2005, you might donate a vehicle, but the value of the deduction will be based on what the charity receives for the vehicle. Your estimate of value is no longer valid. Most charities do not even handle the vehicles. An agency collects them and "dumps" them on the wholesale auction market. In many cases they sell for a fraction of the "blue book" value. Unless your vehicle is actually used in doing the work of the charity there is no way to refute the value they name. They must send you your receipt within 30 days of the actual disposal of the vehicle.
The Wealthy Keep Paying. Late last year IRS released statistics on tax returns for 2002. The tax load on high-income folks crept up again. The top 5 of filers had 31 of all the income that was claimed, but they paid a whopping 54 of income tax collected. The 50 of filers with lowest incomes slid a little and paid only 3.5 of all taxes.
Protestor Pleads Insanity. Irwm Schiffmay be the most famous tax protestor of all time. For years he sold books and gave lectures to show how the Tax Code is illegal. His materials continue to sell even though he has been jailed twice for falling to pay his own taxes.
The IRS put him on trial in Nevada seeking $2.5 million in taxes and penalties. His lawyer claimed he suffers from "mental disease" and has a severe delusional disorder. A psychiatrist also told the Court he has been paranoid for years, as a result of heavy losses in a tax shelter.
Mutual Fund Investors need to keep careful records. Many people have turned to these funds in light of low interest rates paid on savings. If you invested in mutual funds please keep careful records. This is not a savings account. You bought stocks, and when you sell you must report your cost to measure your gain or loss. This is easy if you simply buy and hold. However, most investors "reinvest" the dividends. Each dividend payment represents another purchase! After a couple of years you may have 25 or more purchases. Their total is your real investment. Without the monthly records the calculation is impossible.
Withholding Tune-Up. I helped several of you calculate a different amount of withholding. Did you watch the next check to see if the right amount was withheld? You may have marked the form correctly, but someone had to enter the data to a computer. Mistakes happen. If you're not sure I can recheck the figures by seeing your pay stub. Call me if you're unsure. It's much simpler to check now than to face a big surprise when we prepare your next tax return.
Volunteer Expenses. If you help out at a church, school, or other tax- exempt agency your costs can be claimed as a charitable contribution to the agency. Watch for mailing costs, telephone expense, costs for supplies or copying. You may even deduct the cost of the refreshments you provide if you host a meeting for the group. You may also claim an allowance for your driving to events, meetings, activities, or rehearsals you help with. It's only 140 per mile, but you'd be surprised how quickly it can add up!