Last-Minute Tax Tips That Will Work For You - Brief Article

Ebony, April, 2001

AS the 2000 tax deadline approaches, some of you may be in a state of panic, while others are coasting along, secure in the knowledge that your refund check is already in the mail.

For Brothers and Sisters who wait to go to the post office at midnight on the deadline date, here are some last-minute tax tips that may help you take advantage of all of your deductions and credits. And remember, financial experts say, the best refund is no refund at all. That means you had a sound financial plan throughout the year and have already put the money to good use.

Get Organized

While a more organized person would file all tax papers, receipts and canceled checks in a file cabinet under "2000 Income Taxes," you may not be the most organized person in the world. It's up to you to find every slip of paper in the far corners of your kitchen or car or in separate files for checks, investments and loans. Regardless, the goal for filing your income taxes is to take advantage of as many legal deductions and credits as possible.

You need all of your income records, better known as W-2 forms, savings and investment records, mortgage records if you own a home, charitable contributions if you've made any, real estate income, expenses for your car, medical bills, business and child care.

And to avoid all this receipts-in-the-shoebox stuff next year, consider investing in a software program to track and manage all of your finances. Or, at the very least, keep all of the tax-relevant papers in one place.

Higher Education Breaks

Be aware of the student loan interest deduction, part of the tax benefits for higher education. If you paid interest on a qualified student loan in 2000, you can deduct up to $2,000 of that interest for 2000. Your lender should send you a statement showing how much interest you've paid for the year. Student loan interest deductions will increase to $2,500 for 2001. You should also try to take advantage of the Hope and Lifetime Learning Credits if you or your dependent qualifies.

Retirement Account

You may be allowed to deduct up to $2,000 for contributions to an individual retirement account (IRA). The IRA deduction has been allowed to more people for tax year 2000. If you participate in your employer's retirement plan, your eligibility for this deduction depends on your income level. The level is adjusted each year to make more people eligible for this deduction. If you earned more than $62,000 in 2000, are married and file a joint tax return, you are ineligible for this deduction. The income level is $42,000 if you are single.

Keep in mind that you have until April 16, this year's tax deadline, to purchase an IRA and take advantage of this deduction.

Home Office

If you run a business in your home, or work out of your home, you may be able to deduct the cost of your office and equipment. Special rules apply to prevent you from deducting personal expenses, but in some cases, you may even be able to deduct a portion of your rent and car-related expenses. Consult with a tax professional or contact the IRS if you're unsure that you qualify.

Earned Income

The earned income credit (EIC) is a tax credit for certain people who work and have "earned" income under $31,152. A credit usually means more money in your pocket and reduces the amount of tax you owe. The earned income credit may also give you a refund. In most cases, investment income and social security and other income do not count.

Home Ownership

Home ownership is a huge asset in tax reduction. The IRS rewards home ownership by letting you deduct many home-related expenses, including pre-paid interest, points and real estate taxes.

Filing Status

File head-of-household status if your dependent qualifies for an exemption, even if he or she does not live with you, says Genevia Gee Fulbright, CPA, of Durham, N.C., vice president of Fulbright & Fulbright, CPA, PA.

Moving

Deduct moving expenses only if you move more than 50 miles for a new job, says Fulbright. If the new position resulted in a move for an entire household, you should be able to deduct all of those expenses.

Charitable Donations

Make sure you review and add all of your charitable donations, including tithes. Any reputable or qualified charitable organization will issue you a signed receipt for money or goods donated, including clothing, a car, books and furniture. This is required for donations worth more than $250. The value of these goods would be the fair market value.

Extension

If the deadline's approaching and there's no way you'll be able to file your taxes on time, ask for an extension. Although you have up to three years to claim a refund, if you owe money, the IRS expects to get paid on time. To file an automatic extension, a form 4868 must be postmarked by April 16. This will extend your deadline to August 15. Beyond that, you must file form 2658, an application for an additional extension. "On that form, you have to explain why you need additional time," says investment counselor Arnetta Tolley. "If you don't have a form, send a letter. It has to be approved by the IRS. And there's no guarantee that your request will be granted."