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Taxes - It's your Money
How to get the most back
February, 2008 - Issue #40
It's an oft-lamented truth about taxes that you can run but you can't hide. And even if you do run, you can't run for long.

April 15 is closer than you think.

The good news is April 15 is still far enough away for you to be proactive.
According to some of the SCV's most seasoned and savvy tax professionals, you don't have to dread this annual rite of spring. The right information can make all the difference.

Here are five steps to help point you in the right direction:

1. Miss the Minefields

This is obvious, but you can't hear it enough. When dealing with the IRS - or any federal agency, for that matter - don't lie. This includes the bold-faced, "I really did need a blender for my hiking business" lie. It also includes subtler lies of omission.
Not all minefields are so obvious, of course. Some are born of ignorance. Tax law can change, for instance, or you can misunderstand its various shades of meaning.

Julie Sturgeon, CPA, who has been preparing taxes for SCV individuals and businesses since 1991, sympathizes with the plight of the preparer.

"It's not easy to go through the tax process [on your own]," she says. "You're probably going to make mistakes. It's like trying to change your faucets when you're not a plumber."

One option is tax software such as Turbo Tax. This may work for you if your tax return is simple enough for a 1040-EZ form.

But if you own a home or a rental property, if you have children and are saving for college expenses, if you invest in the stock market, if you own a business or incur expenses from your job, you probably need the help of a pro.

"A lot of people buy Turbo Tax and try to do it themselves," Sturgeon says. "We love that because they're usually back in our office. They've spent days worming through the software and they're frustrated."

A tax pro can help if something goes amiss, as well.

Culver Income Tax/Bookkeeping's Paul Azir, who holds a Masters Degree in taxation law, concurs.

"A professional becomes a third party to negotiate with the IRS if something goes wrong," he says.

In other words, if you must traverse a minefield, grab a knowledgeable guide.

2. Missed Opportunities

Something else to watch for during tax season is missed opportunities. Most people see filing a return as a negative, but it doesn't have to be.

According to Dave Fender of Dave Fender and Associates, missed opportunities tend to fall in one of three areas: stock losses, personal residence exclusions and work-related expenses.

"If you own stocks and you're currently in a loss position, you may be able to realize the loss on you tax return by selling that stock before the end of the year," says Fender. "You may even be able to buy back the stock after a short period if you feel the stock still has some future appreciation value. This is tricky and the loss may be limited, so you should consult with a professional."

Fender, who has been filing clients' returns for 21 years, says people often incur work-related expenses without knowing they can claim them, or lose out of possible deductions when they have to file an out-of-state return.

Some missed opportunities even involve disasters - financial and otherwise. If your home has gone into foreclosure, for instance, you may be eligible for special tax breaks. You can also deduct mortgage debt, but you need to know how much.

"That's a big advantage in this economy," says tax professional Michael Green.

Green should know. He's been preparing tax returns since the late 1970s.

"You can take a deductible loss connected to fire damage," Green says.
Another potential missed opportunity is not knowing how to balance income and tax-exempt investments. You have until April 15 to make contributions to a 401k plan or an IRA and still apply them to 2007. If you're hovering close to a tax bracket shift, you'll want to know that.

"We can find the breaks," Sturgeon says. "We can find where you gain the most advantage, right there on the spot. That's probably one of the bigger advantages to what we offer."

Also, if you own a rental property or run a small business, you need to be able to figure out depreciation. You need to decipher the nebulous Schedule C.

"A big problem we see with businesses is completing a Schedule C," Azir says. "Most people figure it out wrong. They miss deductions."

You also need to track expenses. Just be careful.

"The IRS has strict rules about these," Theresa Stewart, CPA, says. "You need to keep records."

3. Manage the Changes

A successful tax season also involves keeping abreast of shifting tax laws.

Do you know what to do with the Small Business Tax Act of 2007, or the Tax Relief and Healthcare Act of 2006?

Tax pro Theresa Stewart does. After more than 20 years of tracking the IRS, she knows her way around the tax code.

"The tax laws are complicated," she says. "Tax professionals stay current on the law. For example, the alternative minimum tax has just been changed. That will affect people."

The alternative minimum, established in the '80s, targets the wealthy. It stipulates that if you make more than $150,000, you must pay a minimum tax, regardless of deductions. But the IRS never adjusted for cost of living, so people are bumping into it now who weren't supposed to.

After years of wrangling, the IRS is making adjustments. You could be affected.

Congress has also made changes to how the IRS tracks charitable gifts.

"It used to be you could just give a guesstimate of what you gave, but that's not going to fly now," Sturgeon says.

Also, according to Green, those saving for college may be affected by some changes.

"The IRS is changing the rules on children's filing," he says. "If you put money in your child's name, that money is your money and is taxed at the parent's rate. You lose that benefit. For 2007, that applies to children through age 18. In 2008 it will apply if they are still in college."

4. Make a Plan for 2008

Tax pros say the best way to achieve tax success is to start planning ahead. When you consider what to withhold from your paycheck, it's best to employ what Stewart calls "penalty proof withholding."

"When I do a return, I'm also planning opportunities for next year's taxes," she says. "That helps people save money on taxes in the future. Nobody wants to have that unhappy meeting with their tax professional. There shouldn't ever be surprises."

Many tax pros double as financial advisors. Ask your pro about making plans for next year. The best ones integrate both services.

"Everybody's got questions when doing tax returns," Fender says. You should be able to ask questions and feel comfortable with the answers."

5. Get Educated

In terms of financial planning, taxes are just one element. You must always see the big picture.

How do your taxes fit in with your investments? How does your spending affect things?

Knowledge is key. That's the premise of SCV's Total Money School, a division of Total Financial Solutions. It's a cutting edge program aimed at equipping people to make smart financial choices.

The school offers monthly classes in subjects ranging from money basics to real estate to tax preparation.
It provides the tools to help you ask the right questions.

"If your CPA is zigging while your property manager is zagging, that's not a good fit," says Jim Shafor of Total Financial Solutions, which operates the school. "We use professionals in the field to teach students so they can make better decisions for themselves."

The school breaks down the complex issues related to money management into terms laypeople can understand. Wondering where to put your disposable income? Take the school's investment course.

"You don't want to be held hostage by money," Shafor says. "We make sure that doesn't happen."

For more Information

• Paul Azir of Culver Income Tax/Bookkeeping 775-4844
• David Fender of David J. Fender & Associates, Inc. 753-9402 www.myhdvest.com/davidfender
• Michael Green of Michael L. Green Tax & Financial 257-4111 www.taxbeacon.com/mlgreen
• Jim Shafor of Total Financial Solutions 753-9683 www.tsfwealth.com
• Theresa Stewart of Theresa M. Stewart, CPA - An Accountancy Corporation 775-9534
• Julie Sturgeon of Julie M. Sturgeon, CPA - A Professional Corporation 251-6031 www.cpasturgeon.com
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