With tax reform about to take hold, it is especially important to carefully review your 1986 tax strategy and take all the deductions you are entitled to, because many of the more popular deductions you are used to claiming are being eliminated, explained Richard J. Stricof, a tax partner with Seidman & Seidman/BDO, a national accounting firm.
Stricof said you should keep the following tax tips in mind when doing your returns, since this is the last year that they apply:
Be sure to fund your individual retirement account with the maximum allowable amount by April 15, since you may not qualify for an IRA deduction after this year. But remember not to include the interest earned on your IRA as income.
If you made any major purchases in 1986, such as a boat or car, don't forget to deduct the sales tax paid on these items.
If your salary substantially increased in 1986, you may be able to benefit from income averaging for the last time. If you qualify, your income will be taxed as if it were spread over the last four years, which could result in a larger refund.
This is the last year you can deduct the entire cost of theater or sports event tickets that you used for business. After 1986, business and entertainment expenses will only be 80% deductible. (Also be sure to list this expense under "entertainment." If you list it as a gift, you are limited to a $25 deduction; the same limit does not apply to entertainment expenses.)
Remember to review a 1040 form and a Schedule A, even if you think you will be filing Form 1040EZ or 1040A. You may find that you more than exceed the amount of allowable deductions necessary to benefit from itemizing.
If you sold your primary residence during 1986 and reinvested in a new one--or plan to within two years of the sale--you do not have to report the gain as taxable income in 1986. In addition, if you or your spouse are 55 or over, you can claim a one-time-only $125,000 exclusion of the gain from your income, as long as you lived in the house for three or more years prior to the sale.
All business expenses not reimbursed by your employer are deductible. This includes organization dues, subscription costs, transportation costs to and from job-related courses, and travel to and from jobs, where you have more than one place of business.
Job-hunting expenses such as typesetting and printing a resume, postage, transportation for interviews and long-distance telephone calls are deductible.
Don't forget to deduct the balance of 1985 state and local taxes paid in 1986. (The state only reminds you to report refunds you receive.)
Interest expense paid to the Internal Revenue Service on late payments is also deductible.
Remember to deduct all medical travel expenses.