You know, April 15 could just as well be "tax freedom day." But as it is, that's the day our federal (and usually our state) tax returns are due. On the other hand, millions of people have already decided to make the day their "freedom day," by simply joining the subterranean economy and working totally "off the books."
Joining the underground, all-cash economy is quite understandable when the government's tax load on all of us can only be described as obscene. But as a lawyer and tax specialist who benefits from the system as it is, I certainly do not urge anyone to join the countereconomy. And I certainly urge everyone to obey the law and the Constitution as it is written. Therefore, with the income-tax deadline less than a month away, here are a few hints that may save you some money.
First of all, you don't really have to file your tax return by April 15. If you can't get it all together by that day of infamy, submit a Form 4868 (automatic extension of time to file your return). If you're going to owe any money above what the government has already taken through withholding (or your estimated payments, if you're self-employed), then you've got to send that in with the Form 4868. The form allows only an extension to file your return, not to pay your tax.
When you do sit down to hassle out your taxes, it's a good idea to spread out all those records and receipts so you can get at 'em. (An even better idea is to have your tax expert figure it all out; but just be sure he or she is tough and thorough—and on your side rather than the IRS's.) Then use the Form 1040 to find out what records you need, line by line. The very best and most crucial records are your canceled checks or check registers for the year. (For most of us, if we keep a running check register, these take the place of "accounting books." Of course, if you have books for your business, then you use them.)
Don't use a Form EZ or Form 1040A, as the IRS urges everyone—those forms just don't have the lines that can save you money. They're for "easy hits" for the tax authorities.
Besides the Form 1040, you'll need the Schedule D if you sold any capital-gains property during the year (stocks, bonds, land, buildings, and such). If you're self-employed, you'll be filling out the Schedule C and accompanying Schedule SE, which is the Social Security rip-off (now up to 11.3 percent on your net self-employed income, a tremendously damaging tax that acts as a surcharge on everyone's income; for employees and employers, the rip-off is even worse, now up to 13.7 percent).
If both you and your spouse work, you'll definitely want to use the Schedule W, which is a small deduction meant to cover up the "marriage penalty," the extra taxes you pay for being married when you both work. Still, a bone tossed to the dogs (us) is better than nothing at all.
Then there's everyone's favorite, the Schedule A. Jump into it and take every deduction you can find relating to medical and dental expenses; local and state taxes; interest paid; charitable contributions; casualty and theft losses; and miscellaneous tax- and business-related deductions. It's a good idea to get one of the myriad income-tax manuals (Lasser's, Sylvia Porter's Income Tax Guide, H&R Block's Guide, etc.), which will point out the areas people often miss and give valuable hints in filling out the forms.
Remember to try income averaging (Schedule G) if your income has been jumping pretty steeply over the last several years. You might want to consider filing separately from your spouse, but that generally only works if one of you has excessive medical deductions and a lower income. Try it anyway if you think it might work.
Make sure you've got $2,000 stashed in an individual retirement account (IRA). If both you and your spouse work, you can put up to $4,000 into two IRAs—if you have a spouse who doesn't work outside the home, you can get a "spousal IRA," which allows total contributions of $2,250—all of which amount to "free deductions" (since you still own the money). If you're just setting up IRAs, get it done now, as April 15 is the deadline for getting your money into them this year, whether or not you get an extension on actually filing.
For this current year, if you have business-related deductions for mileage, automobiles, computers, or other business equipment, you'd better familiarize yourselves right now with the new recordkeeping requirements, which are extensive and complete (see my last column, in the February issue). You can't do anything about 1984 (and don't have to, since the records rules aren't in effect for that year), but 1985 is a different story.
Let's face it, taxes in the United States have been out of control for some time now. Our economy is staggering under the immense disincentives and distortions caused by what is in effect a pork-barrel tax system.
Any possible solutions in sight? Well, not while people like House Speaker Tip O'Neill, Senate majority leader Robert Dole, and other enemies of the taxpayer still hold national office (not that the rest of them aren't as bad—they're just less visible). Not a political solution, at least. Unless, of course, you regard the subterranean economy as a political refuge and joining it as a political act. But most of us don't want to break the law, so the next best thing is this: educate yourself about the taxes you're forced to pay. As you go through life, be aware of your financial moves and options and how you can keep the money that's yours.
Tim Condon is an attorney and tax specialist who practices in Florida.
This article originally appeared in print under the headline "Taxes: Keeping What's Yours".