Taxes: Tips for Taxing Times
This is the nastiest time of the entire year. Why? Because income tax time is fast approaching. And for anyone who keeps in mind that taxes are forced exactions, and go to pay for an institution that has caused more death, destruction, and misery than any other in the history of mankind, parting with this money is particularly painful.
So I want to tell you to get your taxes done now and on time. A non sequitur? Not quite—just a prudent defensive measure. You see, if you get your taxes done early (that is, before the mad stampede at the beginning of April), you won't have to worry about getting that last-minute appointment with your tax specialist or spending a frantic, last-minute 24 hours trying to figure out the unfigurable.
More importantly, if you get your return done now, you can slip it into the mailbox on the April 15 deadline, along with literally millions of other harried taxpayers. Although the IRS yearly tries to deny the fact, it's been established (in congressional testimony, no less) that a person's tax return has a much better chance of slipping through without a close examination if it's mailed on or about April 15. And this year—tsk, tsk—it will be harder than ever for the IRS to "do its thing" with us, since presidential directives have been steadily whittling down IRS personnel by significant percentages.
Now, since you've decided to sit down instantaneously and get your taxes done, take this article with you. What follows is a host of little hints, things not to forget, places to look for extra deductions, and important nooks and crannies in the current tax law.
• First of all, be sure when you sit down that all your records and receipts and so forth are together in front of you. It's hard as hell to get your taxes all done (or have your preparer do them) and then happen upon a sheaf of forgotten deductions that will change your entire return.
• Second, if you're going to do your own taxes, you've got to have a good tax preparation book for reference. The most important thing to look for is an extensive and comprehensive index. Probably the best is J.K. Lasser's Your Income Tax. It can be found, along with about 20 other income tax guides, at any good bookstore.
• Don't neglect the venerable Schedule A—Itemized Deductions. Tax breaks often forgotten on this form include medical transportation mileage, nonprescription medicines and drugs found in your cabinet at home, medical supplies (like gauze, bandages, adhesive tape, thermometers, etc.), both cash and noncash charitable donations (such as charity mileage driven, things from your home donated to Goodwill or the Salvation Army, etc.), casualty losses (such as trees and shrubs lost in floods or freezes, not to mention the common fires, thefts, auto wrecks, etc.), job-seeking expenses, job expenses (including special clothing, safety equipment, books and manuals, gifts, etc.), tax record-keeping expenses (including notebooks, pens, ledgers, and your safe deposit box), and much else. The Schedule A is a veritable gold mine. Dig in it.
• If you made any capital gains in 1981 (through the sale of items such as land, buildings, jewelry, stocks, and bonds), you should be aware that you don't have to report it all on your tax return. Besides the normal 60 percent capital gain deduction, installment sale rules have been drastically revamped—in favor of the taxpayer—such that virtually anyone can qualify for reporting these gains on the installment basis. This means you'll report only a part of your profit each year; and for the next three years, at least, tax rates will be going down.
• If you own anything you can depreciate on your tax return (rental property, business machinery or vehicles, office equipment, etc.), you're going to be delighted with the new depreciation rules. For depreciable property put into use after December 31, 1980, there's a very simple 3-year, 5-year, 10-year, and 15-year set of schedules (depending on what kind of property is to be depreciated). Wonderful stuff. (And remember, if you did put depreciable property into service in 1981, you may be eligible for an investment credit if it's the right kind of property.)
• Other tidbits available this year include, besides the generally lower tax rates (a 2.5 percent drop for 1981), an increased child care credit for moms and dads who both work; a new research and development credit, which can be examined on the new Form 6765: Credit for Increasing Research Activities; and slightly changed rules for avoiding tax on the sale of a principal residence (you now get two years instead of 18 months to buy another abode, or you can take the once-in-a-lifetime exclusion, now up to $125,000).
• On the negative side of the tax battle, commodity straddles have been pretty much eliminated, greatly increased penalties of all kinds are coming on line for the IRS to beat us over the head with, and the awful and egregious Social Security taxes have gone up yet again (if you're an employee, you'll have to pay a maximum of $1,975.05, up from a maximum of $1,587.67 in 1980; the self-employed will get hit for a maximum of $2,762.10 for this monstrous boondoggle, up from $2,097.90 last year).
Naturally, the size and scope of government is going to grow in 1982, even with President Reagan's first cuts. Naturally, taxpayers are going to have to pay more in 1981 than 1980 and will pay more in 1982 than in 1981. Yet even so, we're at least somewhat better off than if the bigger spenders had won the White House. It's easy to forget this fact.
Finally, don't let me hear anyone out there complaining about high taxes if he or she is not a member of the National Taxpayers Union (325 Pennsylvania Ave., S.E., Washington, DC 20003) or the National Tax Limitation Committee (1523 "L" St., N.W., Suite 600, Washington DC 20005). Or, preferably, both. There's a long struggle coming.
Timothy Condon is an attorney and a tax specialist practicing in Florida.
QUOTABLE QUOTE
The hardest thing in the world to understand is the Income Tax.
—Albert Einstein