Tips for do-it-yourselfers
It starts right about now. Checking the mailbox every day, knowing that the W2’s are coming. The 1040A has arrived, and the tax men and women are fielding phone calls.
It’s right about now that the regrets start flowing. Why didn’t I keep receipts? Why didn’t I keep track of my mileage?
For the people on the lower end of the income spectrum, tax knowledge is a scattered collage of the things your parents told you mixed with the dubious advice of friends. Waiters and waitresses, ski lift operators, seasonal construction workers and all those who work three and four jobs open their mailboxes to a stack of W2 forms and not much information. Often, they end up having to write a check for more taxes, because employers didn’t take enough out of their paychecks during the year or because they improperly reported tips and other extra income.
Those who make less than $30,000 a year probably won’t be hiring an accountant to do their taxes this year. They’ll carry all the forms into a coffee shop, spread them out on the table and spend the next few hours sorting through the dollars and cents of 2004, dreading the way the numbers will add up.
For those people, three local accountants — Paul Strong, Allison St. John and Rodney Hinton — offer this free advice.
Changes in 2005
Two tax laws were passed in 2004 — the Working Families Tax Relief Act passed Oct. 4, and the American Job Creation Act passed Oct. 22.
The latter will have little effect on lower income people, because, in Strong’s words, “Giving tax cuts to people making under $30,000 to create jobs wouldn’t make sense.” The American Job Creation Act gives tax help to employers as an incentive to keep jobs in the United States.
The Working Families Tax Relief Act, on the other hand, is an extension to 2010 of several line items that were set to expire. It extended the child tax credit ($1,000 per child), expanded the lowest tax bracket as a form of relief and extended the marriage penalty relief. A $250 deduction also was extended for schoolteachers who spend their money on supplies.
“The biggest thing for me is for down the road,” said St. John, CPA and owner of Blue Sage Tax and Accounting. “People need to watch what Congress does in 2010. If they don’t make some changes, a bunch of tax relief will be gone.”
The only other change in 2004, Strong said, was a slight increase in the standard deduction for a single person, which went up to $4,850 from $4,750.
Tax saving tips for waiters
Report all your tips. At the end of the night, when you’re cashing out and adding up the dollars in your pocket, there is always a temptation to lie about how much you made, but lying about those numbers can come back to haunt you during tax time. (You do not have to report the tips that you give to bus boys and hosts.)
For those who itemize, waiters and waitresses can deduct any job-related expense such as the purchase of a uniform.
Tax saving tips for people with multiple jobs
The withholding tables that employers use to deduct taxes from your paycheck are based on the idea that you only have one job, but workers with three and four jobs are in a higher tax bracket than each individual paycheck withholding takes into consideration. If you make more money, your tax rates go up.
The difference in those figures will add up to the worker writing a large check to the government at the end of the year.
All three accountants suggest claiming 0 exemptions (if you are single without children) on your W4 form and asking your employer to withhold extra money if you had to write a check last year.
Tips for the self-employed
For those who are self-employed for the first time in their lives, tax time can be a rude awakening. The nightmare is called “self-employment tax.”
The key to keeping yourself from writing a check for one-third of everything you made in 2004 is to deduct all your business expenses, down to the pens you bought.
All three accountants gave the same advice to those who are self-employed: Keep good records.
“Anything you can do to keep those receipts,” St. John said. “Keep a bag in your glove compartment and once a month categorize everything.”
Scott Ford, director of the Small Business Development Center at Colorado Mountain College, provides an organizational notebook for those who are self-employed to keep track of receipts for expenses and to record mileage.
Keeping track of mileage can save you a lot of money. According to an Internal Revenue Service press release, the mileage rate has increased from 37.5 cents per mile in 2004 to 40.5 cents in 2005. The three-cent increase in the business mileage rate is the largest one-year rise in IRS history.
Strong suggests keeping a separate bank account and writing yourself checks from your business account as a way to keep track of expenses. If you have a credit card, keep two cards — one personal, one business.
Some obscure deductions
Unless you itemize on your tax return, which people don’t usually begin to do until they buy a home, there is not much you can do to control the amount of taxes you pay, Strong said. But if you do itemize, here are a few deductions you may not know about.
For those who moved to Steamboat this year, they may be able to deduct moving expenses.
“You can deduct moving expenses if the move was job-related,” Strong said. “If you just moved here to ski, it’s not deductible, but if you left a job somewhere else because you had a job here, it is deductible.” The move must be at least 35 miles from your previous residence to be deductible.
“Transportation of your goods, if you rented a U-Haul, that is deductible,” Hinton said. “If you hire a moving company, it’s deductible. Storage and personal expenses, like staying overnight in a motel, are deductible.”
If you do volunteer work for a nonprofit organization, you can deduct 14 cents per mile for volunteer-related travel.
“If you carry stuff around for the Arts Council or for Winter Sports Club, those miles are deductible,” Strong said.
“Tax law is complicated. That’s why I have a job.”
— To reach Autumn Phillips call 871-4210
or e-mail firstname.lastname@example.org
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