Heart Palpitations as Certain as Tax Day? It’s Not Too Late to Reduce Your Bill
Running a touch late with that tax return?
You’ve got plenty of company.
Tax day is less than a week away, and about 1 out of every 4 taxpayers still has to file a return, according to the Internal Revenue Service.
However, even with the clock running, experts say there are still a few things taxpayers can do to reduce their bills.
Here are some strategies to consider now:
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Sock Money Away
Contributions made to some types of retirement plans -- individual retirement accounts, Keogh accounts and Simple plans -- before April 15, 2004, are considered to have been made on the last day of 2003, allowing some taxpayers to claim a deduction on last year’s return.
But deductibility is limited to those who set up Keogh and Simple accounts before the end of 2003. (The account didn’t have to be funded before the end of 2003 -- just established.)
Individual retirement accounts, meanwhile, can be established and funded now. But for taxpayers to get IRA deductions, they must meet certain qualification standards. Namely:
* Taxpayers who are not covered by another qualified retirement plan may deduct IRA contributions of up to $3,000 annually ($3,500 for those age 50 and over), regardless of how much they earn.
* Taxpayers covered by another qualified plan may deduct contributions only if their income falls below set thresholds.
Contributions are fully deductible for single filers earning up to $40,000 and for married couples earning up to $60,000 in 2003. Deductions phase out above those income levels before disappearing completely for single filers earning $50,000 or more and for married couples with $70,000 in joint income.
* Nonworking spouses can deduct IRA contributions, even if the working spouse has a qualified plan. But deductions begin to phase out once the couple’s joint income exceeds $150,000 and are eliminated completely at $160,000 in income.
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Scrounge for Receipts
Taxpayers are good at keeping track of their cash contributions, but they often forget in-kind contributions, said Mark Luscombe, principal tax analyst with CCH Inc. in Riverwoods, Ill. Typically, they’ll drop off sacks full of old clothing or household items to Goodwill or their church and fail to keep the receipt.
These gifts of clothing, furniture, electronics, etc., are deductible at the lesser of their cost or their current market value. Generally, all you need is a list -- for your own tax records -- of what was given away and what it was worth. However, those who deduct more than $500 in such gifts in a single year must attach a Form 8283 to their tax return, listing what was donated and how it was valued.
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Count Miles
Many forget that miles driven on behalf of a charity also can be deducted at a rate of 14 cents per mile, George McCrimlisk, partner in the personal financial planning group at KPMG in Los Angeles, said.
“This stuff adds up so fast, you can’t believe it,” added Jennifer MacMillan, a Santa Barbara-based tax professional. “I drove my son’s color guard team down to San Diego from Santa Barbara last year, and that’s about 400 miles round trip. You help with the food bank or whatever, and it’s 20 miles here and 20 miles there. It adds up.”
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Divorce Those Returns
Normally, married couples benefit by filing joint tax returns, but in a few instances, they might want to consider filing separately, McCrimlisk said. This mainly makes sense when one spouse has a ton of income-tested write-offs, such as medical expenses or miscellaneous itemized deductions.
Medical expenses are deductible only once they exceed 7.5% of adjusted gross income. Miscellaneous itemized deductions -- these are mainly un-reimbursed employee business expenses -- are deductible once they exceed 2% of adjusted gross income.
Those are tough thresholds to clear with joint income, but if the lower wage earner has the big bills, the couple might get the write-offs by using the “married filing separately” status.
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Delay
Those who simply can’t get it together can delay filing a return for four more months -- and they don’t even need a good excuse, MacMillan noted.
Taxpayers simply need to send an IRS Form 4868 with a check for whatever tax liability is due. The day of reckoning on filing the return is then postponed until Aug. 15.
Strapped for money? The IRS takes plastic but charges a convenience fee to do it -- generally a bad deal, experts say.
A better option, McCrimlisk said, is to put the bill on a home equity line of credit. The interest paid on a home equity loan is deductible on your next return.
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Tax tips
Have tax questions or need forms in a hurry? Here’s a quick guide to last-minute help.
* Forms
Available online at www.irs.gov for federal forms, www.ftb.ca.gov for state forms and at many government offices.
* Phone help
Automated help is available 24 hours a day by calling the Internal Revenue Service at (800) 829-4477 or the state Franchise Tax Board at (800) 338-0505.
For live assistance, call the IRS at (800) 829-1040 from 10 a.m. to 3 p.m. today or from 7 a.m. to 10 p.m. Monday through Thursday. For live help with state returns, call (800) 852-5711 from 8 a.m. to 5 p.m. today or from 7 a.m. to 10 p.m. Monday through Thursday.
* Extensions
For an automatic extension of time to file federal returns, send a Form 4868 to the IRS. California returns can be filed as late as Oct. 15 without requesting an extension, but you must pay by April 15.
