Check your mail carefully - compiling tax documents

Nation's Business, Feb, 1989 by Paul N. Strassels

Check Your Mail Carefully It's in the mail--not a check, but important 1988 tax information that you and your accountant will need in order to prepare your business and personal tax returns. This information usually arrives in January and February.

Make certain that you don't discard important documents that might have become mixed in with junk mail, magazines, catalogs, advertisements, newspapers, or any other items in your mail box in these weeks.

Here's what to look for:

* W-2 wage reports for those in your family who drew wages in 1988. If you are paid a salary, your corporation should furnish you a W-2.

* Interest-income information from your banks, savings and loans, and credit unions. Make sure you receive data on each account and certificate of deposit. The IRS feels that businesses, in particular, have failed to report all of their interest income, so the tax agency is eager to match the interest reported on business returns against what banks report they have paid.

* Dividends paid to you and your firm. Be sure to collect dividend information from each broker as well as from individual companies whose stock you hold independently.

* Year-end summaries from investment brokers. They report all taxable and tax-free interest and dividends credited to your account during the year, as well as all your securities sales, which you must reconcile with your Schedule D when you file your tax return.

* The amount of mortgage interest and real-estate taxes you paid during the year through your mortgage lender. This information is customarily reported to you by mail.

* Remainders from state and local governments of tax refunds they may have sent.

* Information on the amount of interest you paid last year on automobile and other loans.

Remove Life Insurance

From Your Taxable Estate

Life insurance that you own is automatically included in your taxable estate unless you terminate your ownership rights to the policy more than three years prior to your death. To guarantee that your beneficiaries will receive life-insurance proceeds free from estate tax, consider establishing an irrevocable trust that will own the policy; give the trust's independent trustee ownership rights to the policy, including the right to change beneficiaries.

How Much Is Your

Business Worth?

Although it is difficult to put a price on your business, you must do it. If you don't, someone else might--possibly overlooking important variables such as the cyclical nature of your business or its dependence on another industry.

In a recent case, the owner of a small flooring company had died, and the IRS, in placing a value on the company for estate-tax purposes, based the value on the company's latest earnings report. Too high, the executor argued. He convinced the Tax Court to reduce the IRS valuation by 40 percent, pointing out that the business depended on the construction, industry, which was headed into a downturn.

Cash Transactions

Still Interest IRS

The law requires tradespeople who receive more than $10,000 in cash from a business transaction, or from multiple related transactions, to inform the IRS of these payments on Form 8300. If you fail to do so, you could face civil or even criminal penalties. Play it safe. Report these payments.

Corporate Generosity

A recent example illustrates how the savvy owner of a private corporation made a donation to a worthwhile charity. First, he caused his corporation to declare a dividend. Second, he donated some of his shares of stock to the charitable organization prior to the date the dividend was to be paid.

As a result, the individual shareholder received a deduction for the fair market value of the securities as of the date of the gift. And the charity, not the individual, received the dividends from the corporation because at the time the dividence was paid, the charity owned the stock.