Bob Leins, CPA
This article is provided by federal retirement expert NITP, Inc. NITP conducts retirement seminars for federal employees throughout the country. For more information on these seminars and the 2005 schedule in cities around the country, click here.
1. What small deductions have I overlooked?
2004 MILEAGE DEDUCTION – The IRS allows mileage rates for operating a car for business, medical, moving or charitable purposes. For 2004, the standard rate for business mileage is 37.5 cents and 14 cents per mile for charity, medical and moving expenses.
LONG TERM CARE – Long term care insurance premiums may provide tax savings on state income tax returns.
MISCELLANEOUS DEDUCTIONS – Costs of tax preparation software, planning and preparation, professional dues and investment advice may be deductible depending on size of income.
COST OF SMALL ITEMS USED FOR CHARITY FUNDRAISERS – Baked goods, coffee, doughnuts, ….
2. Is it safe to claim an office in the home? How about my computer?
Home office deductions will only be allowed if you use your home in connection with your work or business and that usage is regular and exclusive.
To qualify for the regular and exclusive use test, you must use a specific area of your home on a continuing basis. The specific area can be a separate room or any identifiable space. Any personal use of the space will cause you to fail the exclusive use test. Occasional or incidental use will cause you to fail the regular use test.
Offices in the home, generally for employees provide minimal savings but sound exotic. See IRS.gov Publication 529 Page 4 for home office as well as computer deductions.
3. How am I impacted by the Alternative Minimum Tax?
Originally designed in the 1970s to exact a minimum amount of tax from taxpayers who took advantage of complex tax shelters, the AMT currently has evolved to the point where it reaches mainstream taxpayers. Therefore, the tax advantages you may be counting on may not be as high because of the AMT.
What should you do about the AMT? First, get an understanding of it by going to fairmark.com/amt. If you have AMT exposure, the key to lessening the damage is taking action before December 31 of any year.
4. How can I speed my refund and where is it?
Direct Deposit – Instead of waiting for delivery of your refund check through the mail, you can have the IRS deposit the funds directly into your bank account. States may offer this direct deposit option as well.
E-File – An e-filed tax return is sent to the IRS electronically rather than on paper.
An e-filed return speeds your refund in about half the time of a paper return, usually about three weeks instead of six. You can get your refund in only 10 days if you combine e-filing with electronic direct deposit.
Easier proof of filing – Every e-filed return receives an electronic acknowledgement from the IRS within two days – and it’s free.
State e-filing – This year, 37 states and the District of Columbia allow you to e-file returns at the same time as the federal return.
For More Information go to irs.gov and click “Free File”
Where is my refund?
Track the status of your refund:
IRS Refund Hotline 800-829-4477
irs.govand click “Where is my refund?”
5. Medical deductions for retirement community residents?
You (or your parents) may be thinking of moving into a retirement community. Some of these communities offer tax-favored medical services.
A recent Tax Court decision [Delbert L. Baker, 122 TC 143 (2004)] shows how to justify medical deductions. In this case, the court ruled that taxpayers could deduct a substantial portion of the fees paid to a retirement community. Residents of retirement communities that provide medical services can use either percentage method – the per-resident method suggested by the Tax Court or the traditional IRS percentage method. In the Baker decision, the Tax Court noted that the IRS has been using its percentage method in rulings that go back to 1967. Thus, whichever method provides the greater tax benefit should be used.