Tax Tips

By Bob Minsterman

Beware of Fraudulent Tax Return Preparers.

 The IRS warns that you are responsible for what is reported on your tax return even if your tax return preparer commits fraud on it without your knowledge to reduce your tax bill.

   To avoid a fraudulent preparer…

·         Avoid a preparer who claims that he/she can obtain larger refunds or a much lower tax bill than other preparers…bases his/her fee on the amount of your refund…or who makes any promises that seem too good to be true.

·         Make sure that the preparer signs your tax return as its preparer and provides you with a copy for your records.

·         Consider whether the preparer or the preparer’s firm will be around to answer questions about your tax return for at least three years after it is filed.

·         Ask the preparer questions about anything that you don’t understand on your return before signing it.

·         Ask around.  Do you know anyone who has used the tax professional?  Was he/she satisfied with the service received?  Were there any problems?

Last-Minute Tax Savers for Your 2004 Tax Return.

·         Maximize use of IRAs:  Contributions to these legal tax shelters for 2004 can be made as late as April 15, 2005.  The maximum contribution for 2004 is $3,000—plus another $500 if you are age 50 or older.

    Even if you participate in an employer’s qualified retirement plan, you can deduct a full $3,000 IRA contribution if your adjusted gross income is $45,000 or less on a single return or $65,000 or less on a joint return.  (The deduction phases out as income rises to $55,000 on a single return or $75,000 on a joint one.)

·         Spousal IRAs:  All IRA contributions must be made from earned income.  But income earned by one spouse can be used to fund an IRA contribution for the other.  So when one spouse has at least $6,000 of earned income and the other has none, both can make a full $3,000 IRA contribution.

Charity Deductions.

   Deductions for legitimate gifts to charity can be lost if documentation for them doesn’t meet IRS requirements.

   For all contributions of more than $250, you must obtain an acknowledgment letter from the charity by the time you file your tax return.  An appraisal is needed, too, if the gift is an item or group of similar items valued at more than $5,000--$10,000 for non-publicly traded stock

Warning:  Donations of autos to charity have become “audit flag” items.  If you deduct one, be sure the car you donated is not overvalued on your return—and have documentation to prove it.

Tsunami relief:  If you made a cash donation by January 31, 2005, you can deduct it on your 2004 return.

   For all but the most simple tax situations, filing federal and state income tax returns can be a daunting task.  The tax code is very complex and many people cannot get away with simply filling out a few entries on the 1040 form.  With all the specialized exemptions, deductions and tax treatment of special investments, going it alone without professional help can often result in disastrous consequences.  When interfacing with the Internal Revenue Service or a state tax agency, a skilled tax preparer is your best option.  It is very important to find a tax specialist who knows all the aspects of the law so you don’t miss any important details that can mean thousands of dollars.