Taxes: Down-to-the-Wire Tax Tips
Okay, this is it: the last month; last week; last day, hour, and minute. You've got until midnight, December 31, to make any last-second tax dodges. And since most of us will be out—ahem, in more ways than one—on New Year's Eve, you might take a few minutes to mull over your upcoming tax situation right now.
The first thing to point out—as any tax specialist will be glad to give a harangue about—is that good year-end tax planning starts sometime in July or August. Those who refuse to pay attention to their tax situation during the year are condemned to handing over big chunks of their money, willy-nilly, to the people in Washington, D.C., who do so much for you every day, in every way. With that in mind, then, here are some truly last-second tax ploys that may put some extra cash in your pockets, come April.
The first thing you must do is sit right down and take a good, long look at your present tax situation. Now, this isn't as hard as you might think. Nobody's getting any other work done at this time of year anyway. You might as well take out last year's tax return and look it over to see where your previous deductions came from. Those areas are prime prospecting territory for this year.
Find out how much money you've made this year. You can do this by checking your last paycheck stub if there's a spot that shows "year-to-date" totals. Otherwise, you can often find out by just asking the bookkeeping office at work. The figure you get will give you an idea about where you are compared to last year. Are you making about the same amount of money? Or did you come into big bucks this year? Or has your income fallen off? Now think about how you expect to look next year: are you going to make significantly more in 1982? The same? Less?
Next, you get together all your receipts and records and so forth pertaining to 1981. Separate them into piles corresponding to the deductible areas on last year's tax return. If you've got a significantly higher income in 1981, you might have more deductions because of higher expenses. Is that the case? If it is, could you use still more deductions? If your income went down in 1981, how are the deductions looking? If they're at the same level as the previous year, you might not want any more deductions for your 1981 return.
Your basic strategy is this: if your income is the same or higher than it was last year and you don't expect it to go up much more in 1982, grab for all the deductions you can. If your income is temporarily lower this year, hold off on the deductions. You've probably got enough already, and you'll want to save any extras for your higher income next year. Give more weight to your taxes this year, because the overall rates are going down by 10 percent next year. But keep in mind that the reduction isn't going to help much if you expect your income to go up in 1982 by 20 or 30 percent.
How do you get "more" deductions at this late date? Just go hog-wild between now and December 31, paying all the deductible expenses you can think of. In the case of business expenses, if you work for yourself, have a ball: advertising fees, office supplies, printing, copying, furniture, magazine subscriptions, inventory costs, bonuses, insurance, etc., etc. It's all deductible. You might even want to prepay some expenses you know are coming up.
If you work for someone else, but still have business expenses that your employer doesn't pay for, you'll have to be more careful. These expenses go on the Schedule A (itemized deductions) in the "miscellaneous" section, and you first have to determine whether you're over the "zero bracket amount" (which is really the old "standard deduction") for your filing status. If the combined total of all the itemized deductions exceeds the zero bracket amount, then every extra deduction you come up with is gravy.
The six deductible areas are medical/dental; state and local taxes; interest paid; charitable/educational donations; casualty and theft losses (it's hard to "give" to this one); and miscellaneous/employee business expenses. The zero bracket amounts are $2,300 if you're single or filing as head-of-household, $3,400 if you're married and filing jointly, and $1,700 if you're married but filing separately. If you find that you're not near to going over your amount, you may want to hold off until next year when you've got a better chance of surmounting those levels.
On the flip side of the tax-cutting token, you'll find that you can accomplish the same thing as gaining more deductions by putting off income. You did a job for someone and they owe you? You don't need any more income this year? Don't push it. Let 'em pay you in early January. Someone owes you payments, including taxable interest? Let it slide for a couple of weeks. Mañana.
Now, how about the opposite situation: your income is actually pretty low this year, and it's really going to jump in 1982. Most other things being equal (don't forget the 10 percent drop in tax rates next year), you might want to either cram more income into 1981 or put off taking any more deductions until 1982. Both accomplish the same thing: your 1982 taxes will be less. You do this by not spending money on deductible stuff at the end of 1981. Put it off until January. People owe you money? Money that will be taxed as income? Get on it: call 'em up and insist that you be paid before December 31.
Then there are the other small things you should pay attention to. If you've got dependents who make money themselves (kids in college, high schoolers with part-time jobs), make sure you've provided over 50 percent of their support in 1981. A small difference here can spoil your April 15th. Also take a look at your expenditures in such tax-saving areas as child care expenses, energy-saving insulation and devices, moving expenses, and political campaign contributions. There may be money to be saved in any of these areas.
If you can get all this together in the next two weeks, who knows? Maybe you can save yourself money that would otherwise go to government and bureaucracy. In which case…Happy Holidays.
Timothy Condon is an attorney and a tax specialist practicing in Florida.