Six Last-Minute Items to Consider When Filing Your Return

This column, in slightly different format, originally appeared in The San Francisco Examiner Newspaper, April 2, 2000.

Copyright 2000  Robert L. Sommers, all rights reserved.

Six Last-Minute Items to Consider When Filing Your Return

1. Filing Techniques

Always double-check: (1) your math; (2) names, addresses, social security numbers; and (3) lines on the forms where you entered information. File your return electronically or mail it by certified mail, return-receipt requested. Put your social security number on all checks and always keep a copy of your return along with a copy of the canceled check and proof of mailing with your tax records.

If you file via the Internet, make sure your Internet provider retains an electronic copy of your file; otherwise, you'll have to enter information manually next year.

Individuals with gross incomes under $7,050 and joint filers under $12,700 are not required to file; nevertheless, they should claim a refund if they had taxes withheld.

2. Dependency, Education Credits and Student Loan Deduction

Note: Although strict income limits and other requirements apply, consider the following:

Claim a $500 credit for each dependent under age 17. The HOPE Scholarship provides families a maximum credit of $1,500 each year for each eligible student's first two years of college (100% of the first $1,000 in expenses and 50% of the next $1,000), provided the student is attending school at least half-time. The Lifetime Learning Credit applies for the next two educational years and for graduate students, to a maximum of $1,000 (20% of the first $5,000 in expenses) for all students in the family, whether or not they are enrolled at least half-time.

Student loan interest of $1,500 is now deductible for those meeting certain income requirements.

3. Itemize Deductions

You may either itemize your deductions or take a standard deduction. The standard deduction for filing as single is $4,300, joint is $7,200 and head of household is $6,350. Choose to itemize your deductions if they exceed these amounts. Itemized deductions include: medical expenses exceeding 7.5% of your AGI; real estate taxes; state, local, municipal income taxes; personal property taxes; casualty and theft losses; charitable deductions; and miscellaneous deductions exceeding 2% of AGI.

Note: Payment for automobile licensing is generally deductible as a personal property tax. Check your registration renewal notice for that amount.

Note: If you refinance you mortgage, the unamortized points (potentially several thousand dollars) on the previous loan become an immediately itemized deduction.

4. Creative Use of the Dependency Exemption

Claim a dependency exemption if you supply more than 50% of support for a U.S. citizen or resident, or a resident of Mexico or Canada, provided that person lived in your home as part of your household during the entire year, and whose gross income (excluding nontaxable income) is less than $2,750 in 1999.

The person need not be related to you and there is no age qualifier. Thus, a dependency exemption may be claimed in same-sex living situations, when one partner earns less than $2,750. NOTE: Certain family members may be claimed as dependents although they to not live with you (i.e. parents in a nursing home).

5. Consider a Home Office Deduction

Those who have a business without a fixed location or office, and use a space in their home exclusively for business, including administrative and management activities, are entitled to a home office deduction. For instance, a real estate agent who uses a home of inute tax break? Open an IRA, or contribute to an existing IRA, before April 17th and deduct the payment (within the limits pertaining to IRA deductions) in tax year 1999. The IRA deduction phases out for individuals with AGI between $30,000-$40,000 and joint filers between $51,000-$61,000. In general, joint filers may make a $2,000 contribution to an IRA for a non-working spouse, provided their combined earned income is at least $4,000.

6. Don't Overlook a Roth IRA

Although you do not receive a tax deduction, contributions to a Roth grow tax-free and the distributions available at age 59 1/2 are completely tax-free. The Roth benefit phases out for individuals with AGI between $95,000 - $110,000 and joint filers between $150,000 - $160,000. Single and joint filers with AGI of $100,000 or less may roll-over some or all of their IRA to a Roth; however, the rollover is subject to tax.

Consider using the Roth to speculate on high-flying tech stocks. If you hit it big, sell the stock, diversify your portfolio, then manage your investment until retirement age, at which time you'll draw down your booty tax-free!

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All contents copyright 1995-2003 Robert L. Sommers, attorney-at-law. All rights reserved. This internet site provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet® is a registered trademark of Robert L. Sommers.