2002 TAX LETTER & UPDATE



2010-2011 Tax Letter & Update

PART ONE: THE BIG PICTURE BASICS

1. WRITE IT DOWN AND WRITE IT OFF!

When it comes to deductions, the first four words in the “Employee Business Expense” instructions are scary: “You cannot deduct expenses…”. Next you get the important word: “unless”. By writing down a handful of often overlooked deductions, logging work at home, and using simple tax laws to your advantage, you can save thousands to (potentially) millions of dollars. But only if you write it down. Here’s how it reads: “You cannot deduct expenses unless you keep records to prove the time, place, business purpose, business relationship (for entertainment and gifts), and amounts of these expenses. Generally, you must have receipts for all lodging expenses (regardless of the amount), and any other expense of $75 or more.”

So what does this really mean?

• It is the duty of the taxpayer to keep handwritten records in order to deduct ANY expenses. Canceled checks and charge statements are also okay.

• You must keep originals of all lodging receipts regardless of the amount, and all original receipts $75 and over.

• Gifts and Entertainment require more extensive record keeping. I’ll explain those more fully in a minute.

• The vast majority of receipts—those under $75—aren’t needed once the purchase is recorded in your daybook.

• Worried about an audit? Buy a pencil.

• If you write it down, you get the money. If you don’t write it down, you DON’T get the money. Period.

Ultimately, the IRS goes to you, the taxpayer, as the source, and you must have “contemporaneous, hand-written” proof. That means NO electronic daybooks, no PDAs, etc. It must be your handwriting. One newer advantage: Lists from the “Sent” mailbox in your e-mail account can prove work done at home. One other possibility: Print your electronic schedule each week, then sign & date it.

FAQ: Do you mean I don’t need to keep all the receipts?

As long as the amount is under $75, and does not involve business lodging. Take out your daybook, and jot down the pertinent info. But do it now; it must be “contemporaneous”. The IRS’s rough definition: within a week or two.

FAQ: What if it’s $75 or more, or a lodging receipt?

The IRS (when you’re audited) will want to see the issuing company’s original receipt. No receipt, no deduction…no kidding. And if you don’t have the receipt, you’ll have to explain to an angry auditor why you deducted it originally.

FAQ: What records do I need to deduct entertainment expenses?

Besides time, place and amount, you’ll need whom you were entertaining (it must be someone with “hiring capabilities”), and what specific future job opportunity you were discussing. “The upcoming season” is not specific enough; “Louise in Gypsy” is acceptable. The only general times would be opening night, closing night, a specific cast party, or the producer/director’s birthday celebration, i.e., something originating with the business and occurring just before or just after. Going to lunch with a colleague and discussing business DOES NOT qualify.

FAQ: What about deductions for business gifts?

Each gift deduction must include the date, amount, and recipient, as well as the business relationship. The deductible limit is $25 per recipient (or married couple) per year from a taxpayer (or married couple) each year. In other words, if you and your spouse work with another couple, the total BOTH of you can deduct is $25 for BOTH of them. Strategy: Gifts given to more than one non-related person (i.e., a $40 fruit basket to the entire cast and crew on opening night) are not affected by these limits, and don’t count toward any individual-or-couple’s $25 limit. In summation: Keep records of gifts and recipients, and give group gifts whenever possible!

FAQ: How long do I have to keep my old records?

Forever. The reasons are too numerous and detailed. In short: Anything can happen. Some things you will always need: All info on investments (purchases, dividends, reinvestments, sales), and all info regarding real estate (settlement statement, rentals, expenses for building that extra wing, etc.). Don’t believe what you’ve heard about 3 years, or 4 years; I’ve seen different. To be 100% safe, these papers must be kept, realistically, until 7 years after you die.

FAQ: I’ve heard I don’t need documentation for some deductions. Is that true? Yes, it’s called the “Cohan rules”, but it covers only very selective things, like postage, business supplies, and business magazines. And it specifically does NOT cover business mileage, business meals and entertainment. And anything with multiple-use potential (cell phones, computers, internet) must have usage logs to be deductible,

FAQ: What’s the big picture?

WRITE IT DOWN AND WRITE IT OFF! Keep a daybook with handwritten entries for anything under $75, and a receipt box for all receipts $75 or more, plus all lodging receipts while on a business trip.

2. ALL INCOME IS NOT THE SAME.

When most folks think of income, they think of wage income, reported on W-2s, where your employer withholds taxes before you get the paycheck. However, income can also be reflected on varying types of 1099s where no taxes have been withheld, such as 1099-DIV for dividends, 1099-INT for interest, 1099-G for unemployment or state/local tax refunds, 1099-R for pension or IRA distributions, or a 1099-MISC for just about anything else, including income as an independent contractor, business owner, or “freelancer”.

If you have a job that pays $500, and you get a check for, say, $379.21 (because your employer withheld taxes), you are an employee, and should get a W-2 from that company at the end of the year. You may or may not be able to deduct against that income, depending on your situation, so keep track of your deductions just in case!

However, if your $500 job pays you the full $500, with no taxes withheld, the IRS says you own a business, with all the responsibilities that entails, as well as the perks.

Some of the upside:

• You can now deduct at least a portion of the first mile you drive for that business, the first dollar you spend on that business, etc.

• You can open and/or add to a retirement account for yourself, sheltering over 92% of initial profits.

• You can, once a year—provided you write it down—write off a “holiday” or “end-of-season” party under “Business Meals”.

Some of the downside:

• In many cases you must now pay taxes quarterly.

• Since you may or may not get documentation (1099s) from your hirers, you must keep very specific records regarding income.

• Your tax rate just jumped upward, usually between 35-50%. Keeping receipts just got a lot more lucrative! So definitely keep track of your deductions!

FAQ: So I can be running a business and not know it?

Yes, if you’ve accepted a check for work where no taxes were withheld. Congratulations!

FAQ: Why did my tax rate jump upward?

When you’re employed and taxes are being withheld, your employer pays half of the FICA taxes (Social Security and Medicare) and you pay half, 7.65% each. But as the owner, AND the employee, you pay both halves, totaling 15.3%, as well as (approximately) 5%-10% State/Local tax and usually 10-25% Federal taxes, so the total tax rate is anywhere from 25%-50%.

FAQ: If I’m getting this kind of self employment income, what % should I put aside for taxes?

If you are starting out, 20-25%, and 30-35% if you’re in the higher bracket

FAQ: What total income puts me into a higher tax bracket?

Figuring a standard deduction: Singles, about $41,500 of income; marrieds, about $83,000.

FAQ: I work several different jobs. Are there any things to look out for?

Definitely. Many people get hit by what I call “the part-timer’s curse”. If you make $200 a week from each of three sources, they each tax you as if you make $10,000 a year, not $30,000. The gap between taxes withheld and taxes owed can be ENORMOUS.

FAQ: How do I protect myself from that kind of nasty surprise?

First, when filling out the W-4 each year for each employer, be sure to put “0” (zero) exemptions. This is especially important if you are a part-timer and/or have any 1099-type income: freelance income, interest, dividends, unemployment, or any other income where taxes are not withheld. Next, check your pay stub. The Federal income tax withheld should be NO LESS than 10% of your gross, NO LESS than 15% if you’re in the higher bracket. If it’s lower, request from your payroll person additional monies be withheld. Thirty bucks a week is a lot prettier than a bill for $1,500. Also, if you’re getting a pension, unemployment, or social security, you can request taxes be withheld “at source”, that is, by the issuers.

FAQ: I worked for a company, no taxes were withheld, and I didn’t get a 1099. Why not?

There could be several reasons:

• If you earn under $600 from one company, they’re not required to send you a 1099.

• Even when you do earn more than $600, many companies/individuals mistakenly don’t send a 1099.

• Your copy of the 1099 could’ve been lost in the mail.

FAQ: Do I still have to report that income?

YES! For several reasons: First, it’s the law. Second, never assume, because you didn’t get a copy, the IRS didn’t get one. And third, if the IRS gets proof of independent contractor income that you didn’t report, you’ll get a bill for taxes on the FULL AMOUNT (no deductions), or worse, an audit. The IRS rules put the responsibility clearly on the taxpayer to declare all income, regardless of whether it’s documented via a check, a 1099, or nothing at all. If you didn’t get a 1099 from someone who DID withhold taxes (pretty rare), GET A COPY—you WILL need that to file!

FAQ: I have some income I got under the table and I don’t want to declare it. Can you help me?

Absolutely not. Not declaring income can get you sent to jail. Don’t do it.

FAQ: Do I always need the 1099 to file my taxes?

Only when taxes have been withheld from them, and some pension 1099s, due to state laws. Still, they’re good to have for your permanent records.

FAQ: I’m about to file for unemployment. Should I have them take taxes out? YES! They’re going to tax you on it anyway, and it’s MUCH easier to pay in little pieces. The Feds and most states tax you on that income. (California is one notable exception.) Tax oddity: Although unemployment is issued by states, it’s rare for them to withhold state income taxes.

FAQ: I paid a professional over $600 for lessons. Should I send her a 1099?

Yes. And you should send the IRS a copy, as well as a 1096, a summary of ALL 1099s.

FAQ: I paid $1,000 to my hairdresser over the year. Should I send her a 1099? No. That isn’t a deduction for you. No need to send a 1099.

FAQ: I can be paid either on a W-2 or on a 1099. Which should I choose?

It depends on your expenses as a percentage of your income. With today’s tax code, the higher the expenses, the better to get a 1099, but it can be tricky. Check with me if you’re unsure.

FAQ: Can I do my 2010 taxes before I do my 2009 taxes?

It’s almost never a good idea. Many numbers transfer from one year to the next.

3. MAKE YOUR TRAVEL PAY YOU.

Travel gives the rare opportunity to deduct more than you spend. The rates the IRS allows for operating a car for business in and out of town, and food while out of town on business, are usually more than the costs. Once again, your handwritten daybook is the final word if you’re audited. The first request is for the appointment-mileage-travel-meal-entertainment logs. Here’s what’s deductible:

IN TOWN TRAVEL I’ve broken it down into three types:

Type One: In town, travel for business, not being paid.

In town travel is deductible (regardless of whether it’s a mile driven, a subway token, a bus fare, taxicab, whatever) when it’s any unpaid business travel except research. Did you drop off a resume? Pick up a script? Go to an audition? Visit with the agent? Rehearse with the band? Shop for supplies and/or pay for tolls, parking, etc. during any of this? Going anywhere for work-related activity (except research) while you’re not being paid is deductible. But only if you jot it down. This is the one thing most folks (including me) forget. And don’t forget the “If one, then all” rule: If you drive 20 miles to Wal-Mart, and buy at least ONE deductible item (i.e., batteries for a business recorder) the travel to and from is completely deductible.

FAQ: What if I also run other errands during that deductible trip?

That’s okay; just use the direct to-from mileage.

Type Two: In town, traveling for business, to a “temporary work location”.

A fixed location would be your office at work. A temporary location would be almost anything else, except a routine second job you go to on your day off. A musician with a teaching job can write off mileage to and from gigs. A contractor who schedules and orders from home can write off driving to & from work sites. However, teachers -- despite the enormous workloads at home -- can’t write off a home office if they have an office at school.

For actors, if you’re doing a one-day shoot on location, or if you’re a builder and drive to a four-day job, it is a “temporary work location”, therefore the entire drive back and forth is fully deductible. Otherwise, to be deductible, the job must be out of your general area, including the suburbs and you must have to stay overnight.

Type Three (the most common): Going to a “fixed location” (the same place) day after day.

Now it gets tricky: This mainly depends on whether you’re an employee or not. If you’re an employee, it’s rarely deductible, unless you’re going from one work-stop point to another work-stop point. It you’re self-employed, it depends if you qualify for a home office. If so, driving to the workplace is deductible, and driving back is as well, provided you work at home before and afterward and have written proof.

FAQ: What about split shifts?

Driving back and forth for split shifts is considered the commute, and not deductible.

FAQ: What’s a “work-stop point”?

It’s any place where you perform work, and, within a week or so, have handwritten proof of that “work” in your log or appointment book.

FAQ: So home can be a “work-stop point”?

YES, and it usually is for the self-employed. If you have two different trades or businesses, driving to the “different” one from home is only deductible if you’ve logged work at home that day. Similarly, working--and logging it--at the end of the day makes the drive back home deductible.

FAQ: Is that the same as having a home office?

NO. Qualifying for a home office is a separate issue. In addition to the above, qualifying for a home office also involves using the space regularly and exclusively for business. You must also show a profit after all deductions, including the home office. The other provisions are that there is no “office” to do the same tasks at work, and—if you’re an employee—that it’s for the benefit of the employer. At an audit, the IRS will probably want a note from your employer stating the home office is for their benefit, and they’ll definitely want to see (and probably photocopy) your log proving you worked at home. No documentation, no deduction.

Note: If your mode of transport is a car, there are 5 Questions you must answer every year:

1. What Date did you get the vehicle?

2. How many Total Miles did you drive in the calendar year?

3. How many Business Miles are you claiming?

4. How Far is your average daily commute?

5. How many Total Commuting Miles did you drive during the year?

FAQ: What if I don’t know how many miles I drove in the year?

There are several other ways than the easiest: Recording the odometer mileage each Jan 1st. Repairs, oil changes, registrations, and state inspections will all have the mileage reading. Extrapolate if needed. If you had 5,010 more miles on your car on August 7th as compared to February 7th, you can use 10,020 miles for the year.

OUT OF TOWN TRAVEL

Out of town travel is deductible as a business trip, if all the following occur:

1. The main purpose of the trip is business.

2. You pay at least half of the upkeep (i.e. rent/utilities) on a residence back home.

3. There is at least one overnight stay (or you could not have reasonably returned in a day, i.e., you drove back overnight and arrived home after 3am).

4. Your physical presence is required to do this work.

How is this substantiated? Again, your handwriting in your log is most important, but in this case, e-mails, programs, agendas, etc., couldn’t hurt. Any valid business activity that fulfills the above four requirements gets you that day’s food, transportation, and lodging.

And if you had to stay around for other business purposes, a day (or a weekend, or a holiday) can lapse in-between and still be counted as business days. Auditions on Tuesday and Thursday make Wednesday a deductible business day as well. Travel to and from is also considered work. Using these rules—their rules—one could travel on Thursday, work on Friday, work on Tuesday, travel back on Wednesday and write off ALL SEVEN DAYS as work!

NOW, if after all that, your travel DOES qualify as business travel, then along with your lodging and travel costs (mileage, if driving), you also get to deduct $39-64/day for food (depending on the dates and the visited city; each city has a specific allotted amount, and some have on and off-season rates), or, what you actually spent on food, whichever is more. The only caveat is the either/or must be consistent for the year. In other words, you can’t deduct the daily allotments for that three-month summer stock job, then use the actual amounts for that Chicago trip where you visited every expensive restaurant you could find! Special Note: If you’re out of town, and you take a client out for a meal/drinks/entertainment, only the CLIENT’s portion is deductible. Why? You’re already getting the daily $46-71 meal and entertainment allotment; you can’t double-dip. In town, however, the total amount is written off. Remember, for either, you must have notations regarding whom you met and what specific future business opportunity was discussed. Keep in mind: One appointment does not make the whole trip deductible! Only those days you have hand-logged with business activity can be written off.

FAQ: What if the client’s spouse comes along to the meal?

Deduct her or his total as well. And if it’s four clients and you, deduct 80%...all but you. If they can bring your spouse, so can you. Otherwise, you must be able to prove your spouse also worked for the company, or had some other important business function.

FAQ: What if MY spouse comes along for the trip?

Most things can still be deducted. Rental cars cost the same regardless of passengers, so the entire amount can be written off on a business trip, even if your spouse is with you. Similarly, if the hotel charges the same for single or double rooms, you can deduct the whole amount. If there is a difference, you can only deduct the single room rate. But the airline ticket, and the spouse’s meals are not deductible, unless it’s a function where spouses are expected to attend, or your spouse performs a legitimate business function or is also employed by the business.

FAQ: If out of town and getting a per diem, do I still deduct hotel rooms and food?

It depends on how much they were paying and what cities you were in. If the IRS allowed expenses are more, or you have receipts for a higher amount, you can deduct the difference.

FAQ: What if my expenses are less?

For your 2010 taxes, if it’s less than $163/day for room, meals and incidentals, you get to keep the difference, TAX FREE! If more than $163/day, it depends on what city you were in and when, up to $258/day. Keep the cities/dates in your logbook. If you’re out of town and the company is paying everything, you still get to deduct $3/day for incidentals like baggage carrier and hotel maid tips.

FAQ: Any other requirements?

It is important that an audition or the job interview is set up and documented in advance (i.e., with a long-distance call to the theatre, e-mails back and forth), so you can prove to the IRS the trip was for business. Also, work must be locale-specific. Auditioning or interviewing is one example, another is seeing live performances if auditioning for that company. If you’re not job-seeking, then seeing performances is considered research, and TRAVEL FOR RESEARCH IS NOT DEDUCTIBLE, although travel for educational courses in your field taught by others IS. For each trip, record the odometer mileage (if driving) as well as the date and time you left your door and the odometer reading, date and time you returned to your door.

FAQ: What if I travel out of the country?

If the business travel out of the country lasts less than a week, it’s all deductible as business. More than a week, and the regular rules apply. For these purposes, don’t count the day of departure, but count the day of return.

FAQ: What if I’m out of town and the car’s not mine?

If you’re renting or borrowing, use your actual costs, times business use percentage (business miles / total miles). If you pitching in for gas money, use that amount, under “Travel”.

FAQ: What if the car is leased?

You have two choices: Costs times business-use percentage, or business miles.

FAQ: Do I ALWAYS have to keep records of business miles and total miles? If you want the money, you do.

FAQ: Any other important reminders about out-of-town travel? If you’re working out-of-state on temporary assignment—say, summer stock—it’s important you put “0” (zero) on your state withholding forms, even if you have kids and normally don’t pay income taxes. Non-resident states tax you on the monies you made there. One notable exception is Arizona, which doesn’t tax the first $4,500 you make as a single, $9,000 if you’re married. Note for those working in California: Due to the state’s current money crisis, I advise claiming a high number of exemptions if you’re working there and not a resident, and increasing the number of exemptions if you are a resident. It’s better to owe them a bit than to get a delayed refund, or a state IOU.

FAQ: What if I’m working out of the country?

Many other countries have reciprocal agreements with the US regarding taxes, but that’s mostly INCOME taxes, where what you pay them is credited against US income taxes. You’ll still be liable for payroll taxes—Social Security and Medicare—on your earnings. Exceptions include Spain, Australia, and Germany. And some countries—like Canada—may charge self-employment taxes, which aren’t credited against US self-employment taxes. Ouch!

4. RUN A PROFITABLE BUSINESS FROM YOUR HOME.

If you can run a sideline (or main) business at home, do it. This allows you to deduct a portion of mortgage interest or rent, home utilities, insurance, repairs, maintenance, trash removal, cleaning supplies and other upkeep through your home-based business. There are some strict rules, though:

--Home must be your principle place of business. You must use that room (or that part of a room) regularly and exclusively for that business (no dinner table, no kids’ playroom, etc.).

To qualify, you must do at least one of the following:

1) Make most of your money at the house, by doing the essential service of the job. If you’re designing, or composing, home is the principle place of business.

2) Spend more of your work time at the house than any other single work place. One example was a professor who writes lectures all week and delivers them in a few hours at the University. Another was a concert violinist who spent much more time rehearsing at home than at the performances, where she’d come in that day and perform that night. (You MUST have a log of work hours!)

3) Meet your clients in your house as a regular part of the business.

4) Have no other fixed location to perform “substantial administrative or management activities of your trade or business.” If your employer provides you an office at work, it doesn’t pass the test unless you do #1, #2, or #3.

This last one is the most interesting for performers: Since our job is to find jobs, the phone calls, the prep for auditions, the editing of resumes, all qualify as “administrative and management activities”. As long as the space in the home is used regularly and exclusively for those activities, it can qualify.

If it is a separate structure from your home, ANY part used in connection with your trade or business qualifies, but only if it qualifies above as well. Otherwise, it must be used to store items that are bought and sold on a regular basis. The IRS instructions give an example of a plant store owner who grows and stores plants in his backyard greenhouse.

FAQ: I qualify. How do I measure for a home office?

There are two methods allowed: Method #1) Measure your office area. Then compare that with the total space in your house or apartment. If you use any part of your home for storage of business items (props, costumes, etc.,) add that sq. footage to both the deductible space and the total space. (Ask the landlord or check the real estate info. Don’t count unlivable areas like an unfinished basement or attic.) Method #2) If the rooms are relatively similar in size, divide the number of office rooms by the number of total rooms.

FAQ: Do I have to keep a separate bank account for my business?

No, although it is recommended. But I don’t; I run several businesses from one personal bank account. The trick is to keep VERY clear, detailed records regarding deposits and expenditures.

FAQ: What’s the difference between Contract Labor and a Professional Service? If it’s only human services—a helper in a job, the accompanist for an audition—it’s Contract Labor. If there are other factors, such as studio rental time, it’s a Professional Service.

FAQ: What’s the difference between Office Supplies, Business Supplies, Big-Ticket Items, Research, and Materials & Supplies? Office supplies are one-time usage items: stamps, whiteout, paper, etc. Business Supplies can be reused, like scripts or scores. Big Ticket items have useful lives over three years, like tools or a piano. Research (like going to a movie for an actor) leaves you nothing at the end but the receipt and the memory. And Materials & Supplies are items you buy with the intention of reselling, like buying wood and selling tables.

5. MAKE THE GOVERNMENT HELP PAY FOR YOUR RETIREMENT.

By taking advantage of basic tax-preferred savings (IRAs, Roth IRAs, 401(k)s at work, Personal 401(k) plans, 403(b)s, 457(g)s, etc.), you can:

• Keep more of your money by paying less tax. Dramatically less.

• Help ensure your future and the future of others.

• Defer paying taxes, sometimes over generations.

• Make the government contribute, year after year, to your retirement plan.

FAQ: How does the government “contribute”?

The easiest example is a regular IRA. In the 25% Federal/5% State bracket, if you invest $1,000 in your IRA, you reduce your taxes by (approx.) $300. It’s like tossing in $700, and having the Feds & state “contribute” the remaining $300, the equivalent of an overnight 42% return ($300 divided by $700) on your investment!

FAQ: What are differences between a Roth, a Personal 401(k), Regular IRA, etc?

A Traditional IRA, SEP-IRA, Personal 401(k), 401(k) at work, 403(b), and 457(g) accounts are all tax-deferred, that is, you get a tax deduction today, and from now until withdrawal, the monies grow tax-free. They are taxed as income upon withdrawal at retirement, and any early withdrawal is also subject to an additional 10% penalty. A Roth IRA is different: You get no tax break today. Like the tax-deferred accounts, the Roth also grows tax-free. Unlike tax-deferred accounts, withdrawals from Roth IRAs are tax-free once you pass 59½. And any monies contributed to a Roth can be withdrawn, tax and penalty free, at any time, once the Roth has been established for five years. Note: beginning in 2008, employees can be automatically enrolled into a 401(k) plan at work. It’s a great step forward, but be sure you’re enrolled in the plan best for you. Also, distributions from a 401(k) at work can now begin at 62, even if you still work for the company. The old laws didn’t allow that until 65.

FAQ: I don’t have $5,000 for an IRA. Does that mean I can’t open one?

No. $5,000 is simply the maximum, not the minimum. Any amount, up to $5,000, can be contributed to your IRA, with an additional $1,000 if you're 50 or over by the end of the year. Tax oddity: If you’re born January 1st, it counts as the prior year!

FAQ: Should I convert my regular IRA to a Roth IRA?

It depends. I’ve changed my tune on this one. Trial balloons regarding a total overhaul of the tax system had been floated, but went nowhere. Therefore, if you’re currently in a lower bracket, and expect to end up in a higher bracket (inheritance, huge raise, impending marriage, etc.) it makes sense to convert. If you’re in a higher bracket now, wait until you drop into a lower one. One advantage: You can convert and change it back (“recharacterize”) to a Regular IRA as late as October 15th, of the following calendar year. Normally, conversions are only allowed if your Adjusted Gross Income is over $100,000, but in 2010 folks were able to convert to a Roth regardless of income levels. One possible silver lining to the recent stock drops is, with lower balances, the cost of converting from an IRA to a Roth has also dropped dramatically. One other advantage is the tax on the conversion can be split over the 2011 and 2012 returns. The big picture: Tax liability is less in the long run with a Roth IRA, but the trend may be going away from income taxes and toward consumption-type taxes, like a European VAT tax. If that were to happen, Roth investors would be the biggest losers, paying taxes up front and at the end. In the lower brackets, the gamble is worth it. In the higher brackets, it’s better to take the huge tax break today. Regardless, a great gift for a child or grandchild is the amount they earned, contributed into their Regular or Roth IRA.

FAQ: I opened an IRA last year. Should I open another one?

Yes! That, or add to your current one. The tax laws allow additional contributions each year, and the advantages over time are amazing. The savviest taxpayers max out on January 2nd.

FAQ: What are the most advantageous ways to save for retirement?

There are six very distinct tiers to retirement planning and saving.

• Tier One: If your employer matches ANY of your contributions into a

401(k)-or-the-like plan, maximize the company’s contribution. If you work for a company that has something great like this, simply go to the benefits person and ask the magic question: AM I MAXING OUT MY EMPLOYER’S CONTRIBUTIONS? Don’t stop till the answer is YES. It’s free money. And as good as the rest of the tiers are, Tier One is light years ahead.

• Tier Two: Paying off credit card debt, starting with the card with the highest

interest rate first. Credit card debt can (and will) eat you alive.

• Tier Three: Roth IRAs, because they grow and are withdrawn tax-free.

The tax-free status of home ownership is also on a similar plain, just usually not with the same long-term growth potential.

• Tier Four: Regular IRAs, SEP-IRAs, and contributions to 401(k)-esque

plans over and above the Tier One employer matching. Savings are deductible and grow tax-deferred but are taxed upon withdrawal. Lower in this tier are tax-deferred annuities, and the like, but still, way ahead of tier five.

• Tier Five: Dividend-paying stocks & stocks which producing capital gains.

• Tier Six: Regular savings. They are taxed every year, so you lose 15-30%

of any gain each year.

Keep in mind…saving for retirement is like a jail sentence of your choosing: You can either do ten years at 21, thirty years at 31, or fifty years at 41. While slow and steady wins the race, young trumps all.

FAQ: The job I left sent me a check for my 401(k) profit sharing. Will I owe taxes?

YES, AND AT A HUGE RATE IF YOU’RE UNDER 59½! Within 60 days you MUST have those monies re-invested in another qualified retirement plan or you’ll owe taxes at your current tax rate PLUS a 10% penalty. It could easily trigger a tax rate over 40%! Best strategy: Have it rolled over electronically to a self-directed IRA. Then, if you keep these monies separate from other IRAs and do not contribute more, they cannot be touched by creditors, regardless of the balance, whereas regular and Roth IRAs only have a protection level of $1 million. If you do contribute more to a rolled-over IRA, it’s protected the same way as one you started.

FAQ: When I got my yearly social security statement this year, I noticed there was a mistake from four years ago. How do I fix that?

Unfortunately, you can’t. The law only allows you to go back 3 years to correct mistakes. That’s why it’s very important to check the Social Security statement EVERY YEAR. Everyone over 25 should be getting a social security statement each year just before their birthday.

PART TWO: FAQs on TAX

FAQ: I don’t use my cell or my computer 100% for biz. Can I still deduct costs?

The tax law says to deduct anything with personal use capabilities, you have to have documentation of its business use. The simplest way to do this is called “sampling”. For two or three typical months, log EVERY CALL on the cell (or get a printout from your cell phone company). Compare the business calls to the total calls. That’s the % you can use. For the computer, you need work logs that show hours of work time and hours of personal time. Without documentation or sampling, these deductions will be disallowed when you’re audited and penalties could apply. Recent good news about both: if you qualify for a home office, the office computer is assumed to have 100% business use, and if your cell usage is more than 50%, you get to write off 100%.

FAQ: What’s the most commonly overlooked deduction?

Local travel for business, hands down. We all travel—car, bus, subway, etc.—much more for business than we realize. And if home qualifies as an office, the deductions can be enormous.

FAQ: What’s the biggest mistake people make?

Not rolling over their retirement plans when they leave a job, and instead, spending the money. Not only are they probably triggering over 40% in taxes, they’re quite literally shortchanging their future. Other times people need tax advice and don’t always realize it: purchasing a house, or getting a divorce. These are major events with long-term tax repercussions.

FAQ: I charge $50/hr, and I donated 4 hours to charity. Can I deduct $200?

No. You can only deduct the actual out-of-pocket expenses, plus 14¢/mile.

FAQ: I gave voice lessons and never got paid. Can I deduct the $100 I’m owed?

Only if the $100 was included in your prior income (which it probably wasn’t). Otherwise, since you didn’t receive any income from this person, no extra income will be reported, and no extra income tax will be due.

FAQ: What is a “qualified performing artist”?

A QPA is anyone who works for at least two arts organizations with W-2s totaling at least $200 from each, has $16,000 of Adjusted Gross Income or less, and spends at least 10% of their arts income on maintaining their career. The advantage is the QPA gets both a standard deduction, and their itemized arts deductions, which can make a huge difference.

FAQ: What’s better: company reimbursement, or deducting expenses?

ALWAYS opt for the reimbursement program. That pays you back 100%, whereas the deduction only pays back somewhere between 0-35%. For example, a Fed/State bracket of 20% would return 20%. Reimbursement pays 5 times that amount! Similarly, instead of a raise, negotiate (for example) monthly parking. Your employer can reimburse the costs to you, up to $230 a month, and you get the full $230, TAX-FREE, while your employer doesn’t have to pay any additional payroll taxes. It’s a win-win situation. Here’s a chart of a $100 expenditure, and the relative returns in your pocket on your Federal return, assuming 1 room of 5 is used for biz:

|Type / Bracket: |10% |15% |25% |28% |33% |35% |

|Reimbursed item |$100 |$100 |$100 |$100 |$100 |$100 |

|Fully Deductible |$10 |$15 |$25 |$28 |$33 |$35 |

|50% Deductible |$5 |$7.50 |$12.50 |$14 |$16.50 |$17.50 |

|1/5th House Item |$2 |$3 |$5 |$5.60 |$6.60 |$7 |

|Personal Item |$0 |$0 |$0 |$0 |$0 |$0 |

FAQ: Are there any additional requirements if I moved to a new city?

Yes. You must work in your new city for 39 weeks if you’re employed, or 78 weeks if you’re self-employed or a combination of the two. Keep work logs. Also, make the move obvious: re-register to vote, file a change of address with the IRS, change your mailing address on bank accounts and legal documents, get a new driver’s license, etc. Important note: Tax law defines “work” as what someone in your profession would normally do, so even if you’re not being paid for work, keep notes on auditions, classes, lessons, research, studying, etc. If you’re married, only one spouse must qualify. If you don’t stay for the required weeks, the moving expenses aren’t deductible, and you’ll have to amend your taxes. Also consider the tax laws in your new state. For example, if they don’t tax capital gains and your current state does, it would make sense to wait until you move to sell investments.

FAQ: When keeping records for deductions, do I round each purchase? No. Use pennies, and only round the total. If you’ve already rounded, just make sure you’re consistent for the entire year.

FAQ: What’s a Health Savings Account?

HSAs are high-deductible health plans attached to a personal health savings account. The insurance must have a minimum deductible which varies from year to year, and from singles to married couples. Taxpayers can contributed and the deductible amount annually (plus $1,000 if you’re 55 or older in the calendar year) into an IRA-type investment, and use the money for any medical purpose, tax free, except to pay the premiums. The owners of these plans CANNOT have any other health coverage for themselves, however, one spouse can be covered at work, and the other through an HSA. A onetime transfer of IRA monies to an HSA account can be made if your Adjusted Gross Income is less than $100,000. Should you do this? YES! You won’t have to withdraw the monies at a certain age, (unlike IRAs), and any monies used for medical purposes are tax-FREE. A good website to compare what’s available is .

FAQ: What makes it more advantageous to file separately from my spouse?

If one the lower earning spouse has a lot of deductions and the higher-earning spouse has few, or if one has a lot of medical bills compared to income, or if one spouse has a judgment against them that would eat up any refund if you file jointly. Otherwise, it’s almost always better to file together. If you married or divorced during the year, your status is the one on Dec 31st.

FAQ: What should I bring to the in-person tax return appointment?

All income information: W-2s, 1099s, dividend statements, interest statements, pension payouts, unemployment statements, social security/disability payment statements, any info on buying or selling ANY INVESTMENT, info on purchase/sale of a home, INCLUDING THE SETTLEMENT STATEMENT, rental property info, tax refund statements, and anything else regarding income. NOTE: If you normally get K-1s, be aware their deadline for mailing is March 1st, so you may get these later than your W-2s and 1099s. For expenses, fill out this printout, and bring info on student loan interest, all info regarding big-ticket purchases (computer, piano, etc), any receipts about which you have questions, and bring (for your reference) your check register & charge statements, so we can find that unexpected write-off. If you have a particularly odd or large deduction, please send or bring proof.

FAQ: I haven’t filed taxes in years. They can only get me for three years, right?

WRONG! Time limits only apply on filed returns. Non-filers are subject to IRS action forever. Many states have a four-year statute of limitations, but again, only with filed returns. If the IRS believes you have underreported your income by 25% or more, they can go back six years, and if they suspect you of fraud, they can go back forever.

FAQ: Does it make sense to pay my taxes with a credit card?

Usually not. There’s a 2.5% “convenience fee”, plus, if you’re carrying a balance on the credit card, that rate is almost always higher than the Federal interest rate.

FAQ: Is there an order to pay the taxes?

Yes. Always pay in the order of smallest to largest entity (i.e., the local taxes first, then state(s), and finally Fed). Usually the smaller taxing entity charges worse penalties and interest.

FAQ: I can’t afford to pay my taxes. Should I file an extension?

First, realize that filing an extension just extends the time to file, not the time to pay. You’ll still need to estimate the final numbers and pay what you can towards what’s owed. But remember, there’s no crime in not having the money for your tax bill.

FAQ: What do I do if I can’t pay my Federal Income Taxes?

That depends whether you think you can pay it off in full within four months or not. If you can, I’d suggest paying as much as you can with the initial filing. Then, when they remind you of the balance remaining (plus ~5% annual interest, pro-rated), pay, again, as much as you can each month. The fourth notice basically says pay in full or get on their payment plan. If you can’t pay it off within a few months, you’ll need to get on the IRS payment plan, where you can stretch your payment out as much as 60 months, although you must keep current with all other taxes owed; they will not fold one year’s bill into a payment plan. In addition to the 5% annual interest, there’s a $52-$105 fee, based on your income and method of payment. One way or the other, FILE! Not filing is MUCH MORE EXPENSIVE--about 7 ½ times more expensive--than not paying. New this year: The IRS is very aware of the recent downturns, and has indicated a willingness to forgo some interest and penalties if you truly can’t pay. The important thing is to contact them and let them know. If you have lost your job, the IRS cannot continue collections if it would cause you a hardship, i.e., if it would may you unable to pay your rent.

FAQ: What are my chances of being audited?

About 2-4%, even with the extra audits. But plan on 100%. Everyone is audited, eventually.

FAQ: What happens if I’m audited?

You’ll have to prove your deductions in whatever area they’re auditing, and probably have to provide a statement from your employer detailing reimbursement policies.

Contact info: Dean Vivian 38 West 69th Terrace Kansas City, MO 64113-2540 aaktor@ Phone: 816-523-3476 Fax: 816-444-8220.

PART THREE: WORKSHEET

FREELANCE INCOME

NOTE: DO NOT INCLUDE unemployment, tax refunds, interest/dividend income, or pensions.

Total of self-employment income on 1099-MISC’s (not W-2s) ______________

Additional amount (cash, checks) not accounted for with 1099s ______________

DEDUCTIONS

Note: Married couples fill this section out individually. If you have separate businesses (i.e. art and real estate), Create separate sets of income & expenses. Include sales tax with the expenses.

8. Advertising Website, photos, resumes, business cards, portfolios, player’s guides, flyers, video/audio demos, postcards, etc. TOTAL_____________

9. Car and Truck Expenses See Part Two, #3 for details.

When did you get the car? ______/______/______

Total 2010 Miles ___________________

Total 2010Business Miles ___________________

Average Daily Commute ___________________

2010 Commuting Miles ___________________

9a. In town Travel Parking, tolls, taxi, bus, subway, etc. while auditioning or interviewing in the city in which you live, and going from one “work-stop point” to another.

TOTAL _____________

10. Commissions/Fees Agent’s commissions, audition/convention fees, entrance fees, seminar fees, licensing fees, bank fees for your business, etc. TOTAL______________

11. Contract Labor: Did you collect for the group and then disperse? Pay someone to cover for you? Hire a consultant? Here’s where that cost is deducted. If you paid any person $600 or more for the year, you must issue them a 1099 by Jan 31st., plus file a copy of that and a 1096 (summary statement of all 1099s) with the Feds by Feb 28th, April 2nd if you file them electronically. Be sure you do: mistakes can be very costly. TOTAL_____________

13. Big Ticket Items, a.k.a. Depreciation/Section 179 Expense You can "Expense" (write-off in full) major (and minor) purchases, up to $250,000 in 2010, provided it neither creates nor increases a net loss. An MP3 player, TV, musical instrument, computer, printer, scanner, file cabinet, desk, fax, tools, etc., can be written off to the % they are used in your business, provided you have written logs for their business usage.

YOU MUST HAVE INDIVIDUAL INFO FOR EACH OF THESE PURCHASES.

Purchase Purchase Date Cost Biz-use Percentage

__________________ _____/_____/_09 ______________ _________________

__________________ _____/_____/_09 ______________ _________________

…add more as needed.

15. Other Business Interest Any interest on a loan you took specifically for a business purchase. TOTAL____________

17. Legal and Professional Services Studio time, classes, dry cleaning (for qualifying business clothing only; see #22 Supplies, below), lessons, hair care required for employment (hair colorings required but not reimbursed by employer), piano tuning, passport for business travel, a specialists fee for tax services, etc. Backstage tips, for dressers or other assistants, must be documented with name, date, and reason. TOTAL_____________

18. Office Expense Business amounts of postage, paper, pencils, pens, erasers, highlighters, sharpeners, envelopes, toner, paper clips, white-out, staples, etc. Basically, office items which are used once, or a few times, and are used up. Everyone has this! TOTAL____________

20a. Rent or Lease For business vehicles (in town), equipment, machinery, etc

TOTAL____________

20b. Rent or Lease Hall/space rental for performance, storage, exhibition, etc.

TOTAL____________

21. Repairs & Maintenance of Business Equipment (NOT home repair) Service agreement on VCR (business-use percentage), piano tuning, repairs on deductible stuff (TV, DVD player, CD player, MP3, dance shoes, rehearsal skirt, etc.) TOTAL____________

22. Supplies Stage makeup, scripts, books for business, records, tapes, swords, required props, DVD purchases (DVD rentals are below, under Research) headphones, blank audio and video tapes for research or rehearsal, batteries used in deductible items, guitar strings, sewing kit, paint for artists, easels, business clothing that cannot be worn on the street: tux, ball gowns, wigs, leotards, opera gloves, clown gear, etc. Ultimately, multiple use stuff. Not deductible: anything wearable on streets, like business suits, even if they’re only worn to auditions. TOTAL____________

23. Taxes and Licenses Any city earnings or income ax on your previous year’s Schedule C profits, plus any licensing fees or other business taxes. TOTAL____________

24. Out of Town Travel Airline tickets, car rental & gas, tolls, lodging, rent, subway, taxi, bus, train, etc., while out of town on biz travel. Remember: All business trip lodging must be documented with the original receipts! The IRS defines business travel as one or more days of overnight stay (or getting back VERY late—arriving home after 3am) where business, not research, is the main purpose for the travel. Needed for each trip: Date of Departure, of Return, and Destination. Add additional lines as needed. Fill in the number of Work Days if the trip is less than 100% biz.

YOU MUST READ PART ONE, #3, REGARDING TRAVEL FOR WHAT QUALIFIES!

Note: Do not include food/drink totals in this amount! TOTAL______________

Left on Returned on Destination Work Days

______/______/ 09 ______/______/ 09 ____________________ __________

______/______/ 09 ______/______/ 09_ ____________________ __________

…. add more as needed.

Why are exact times no longer needed? The IRS allows an alternate method: ¾ days on the departure and return dates. It almost always works out better.

24b. Meals & Entertainment The IRS defines this as picking up the tab (or your portion of the tab) while with someone of specific hiring capabilities, discussing a specific hiring opportunity (i.e., a specific role in a specific show). Special note: If you’re out of town, and you take a client out for a meal/drinks/entertainment, only the CLIENT’s portion is deductible. Why? You’re already getting the daily $46-$71 meal & entertainment allotment. Also: Taking a business client to a ball game, or bringing a bottle of wine, food, or a 6-pack--from which you partake--to a business party (i.e., opening night, company holiday gathering, director’s b-day). The deductibility of this category is 50%, but please give me the full 100% number. Note this tax oddity: If you bring the above-mentioned 6-pack and do not partake, it becomes a business gift (see 27G Business Gifts, below) and is 100% deductible. TOTAL____________

24b. Meals & Entertainment NOT subject to the 50% limit A party given for business clients to promote goodwill is NOT subject to the 50% limit. TOTAL_____________

25. Business Utilities (NOT home utilities) Long distance for business and all out of town phone expenses while on overnight business travel. Subtotal __________

Cell phone Total Bill _________ X Use % _________ Subtotal __________

Web access Total Bill _________ X Use % _________ Subtotal __________

TOTAL ____________

27. Other Expenses These include:

27D. Dues AEA (don’t forget the 2.25% rate for working dues, plus the semi-annual billing), AFTRA, SAG, AGMA, AGVA, IATSE, AFM, initiation fees, Member Candidate payments, professional association dues, etc. TOTAL ____________

27G. Business Gifts Opening/closing night gifts, holiday gifts to business clients or associates, etc. Limit: $25 per recipient (or married couple recipients) per year. This limit does not apply when given to a group, i.e., a $40 fruit basket to the cast is fully deductible and does not count toward any single recipient’s annual $25 limit. Office workers: don’t forget the “Jo’s having a baby” “Bill’s getting married” or “Ed’s retiring” office contributions. TOTAL ___________

27L. Business Laundry Laundromat cleaning of deductible clothing (see Business Supplies, above). Tax oddity: if one item qualifies, the whole load is deductible. TOTAL ___________

27P. Trade Publications Variety, Backstage, Premiere, American Theatre, Ent. Weekly, TV Guide, the local Newspaper (if your audition notices are there), etc. TOTAL ___________

27R. Business Research Theatre tickets, movies, movie rentals. Subtotal __________

Cable Total Bill _________ Use % _________ Subtotal __________

TOTAL ___________

Note: If you’re a married couple, and only one is in “show biz” no more than 50% can be deducted for cable.

Home Office (from Form 8829) If you qualify for an office in your home (see Part Two, #4, above) a portion of heat, electricity, gas, water, and home phone, as well as a portion of rent or mortgage interest, repairs, & maintenance, and general upkeep (light bulbs, trash bags, furnace filters, water filters, cleaning supplies), is deductible. Basically, everything you spend inside your home except personal items, i.e., sheets & shampoo. No lawn care.

Total Sq. Footage in Home/Apartment __________

Total Sq. Footage in Office __________

--OR, if rooms are about the same size:

Number of Office Rooms __________

Number of Rooms __________

Amount Paid For House (if owned) __________

Value of Land (ask mortgager) __________

Mortgage Interest/Rent (circle one) __________

Private Mortgage Insurance (PMI) __________

Real Estate Taxes __________ Homeowners/ Renters Insurance __________

Direct Exp Indirect Exp

Home Utilities ________ __________

Repairs & Maintenance ________ __________

Permanent Temporary

General Upkeep ________ __________

Notes: An example of “direct” expenses would be a repair or a new paint job to the office itself. Most expenses are "indirect". Utilities include electricity, gas, water, recycling, and basic home phone (NOT long distance). Painting the entire house would be indirect, but painting only one non-business room should not be counted anywhere. General upkeep includes homeowner’s association dues, alarm system, furnace & AC filters, tipping the mail carrier, the smoke detector and its batteries, salt for the driveway, etc., etc., etc. Major improvements, where systems are replaced, rather than repaired (example: replacing the plumbing with all-copper plumbing, or a new roof) are added to the “Amount Paid For House”, since it extends the life of the home.

Beginning Inventory Did you have any leftover inventory from last year? (Unsold CDs, Mary Kay-type products, etc.) TOTAL ________________

Materials & Supplies Did you buy raw materials you later resold, (i.e., you purchased wood and sold finished tables)? TOTAL _________________

Ending Inventory Do you have any products, which you’ve not yet sold? Note: value them in your costs, not retail cost. TOTAL _________________

PART FOUR: SCHEDULE A WORKSHEET

Note for Married Couples: No need to individually separate these amounts.

MEDICAL EXPENSES Only the amounts over 7.5% of your adjusted gross income are

deductible (e.g.: if you make $20,000, only out-of-pocket amounts over $1,500 are deductible). If enough: doctors, dentists, ophthalmologists, eyeglasses, hearing aids, contacts, childbirth classes, birth control pills, dental bills, prescriptions, pregnancy tests, legal abortions, etc. You can also deduct any amounts spent to remove a physical barrier, if anyone listed on your return (self, spouse, dependent) is handicapped. Weight-loss programs are deductible if the participant is obese, which is defined as having a BMI of 30 or more. Note: Drugs bought from Canada ARE NOT deductible. If you are over the 7.5% threshold, savings as compared to prices in America would have to be at least 15% if you’re in the lower tax bracket, and 25% in the higher bracket to make these purchases worthwhile. New: While non-prescription medicines (aspirin, over-the-counter cold remedies) are still not deductible (except insulin), medical supplies, such a bandages, thermometers, walkers, canes, wheelchairs, blood-pressure monitors, etc. now are. Also, both non-prescription medicines and medical supplies CAN be purchased with monies from Health Flexible Spending Accounts and Health Savings Accounts. Don’t Forget: mileage to-and-from ALL the above.

Total health ins. premiums only __________

All other medical expenses __________

Total mileage to/from, first half of year __________

Total mileage to/from, second half of year __________

TAXES YOU PAID Real Estate Taxes (on mortgage statement) __________

Personal Property Tax (Johnson County residents, check your plate renewal) ___________

State & Local Taxes (amount owed to state(s) or locals last April when taxes were filed)--please specify state(s) and amounts ___________ __________ _________ _________ _________

Note: State taxes are only deductible in the year paid, so if you made an estimated payment for 2009 taxes in January 2010, it’s deductible on your 2010 tax return.

Did you buy any big-ticket non-deductible items? (car, boat) y / n

If so, what was it, was it new, and how much did the sales tax cost? _____________________

Local City Taxes Paid (amount owed/paid last April when taxes were filed, not

amounts withheld): On W-2 wages _____________ On Schedule C Profits ___________

MORTGAGE INTEREST This and the real estate taxes are almost always on the lender’s annual statement. TOTAL_______________

PMI Did you pay mortgage insurance (usually paid when you have less than 20% of the house paid off)? TOTAL_______________

POINTS Did you pay points on a home loan, or refinanced and paid off points from a prior loan? TOTAL_______________

--OR…Did you pay points when you secured the home loan, but didn’t write them all off the first year? If so, Points _______ Year of loan _______ Length of loan _____Yrs

Important Note: ALWAYS pay points with a separate check if you’re moving in. Points for moving into a house are deductible in full that year; points paid to refinance must be amortized over the life of the loan.

CHARITABLE DEDUCTIONS There are new rules for recordkeeping regarding charitable donations.

These must be divided into 3 categories: cash/checks donated; goods donated (clothing, furniture); and miles driven for those purposes. Unopened, unused items donated to a “Toys-for-Tots”-type charity are considered cash.

For charity events, only the amount over what the event would’ve normally cost is deductible. Example: $50 Opening Night Benefit tickets, normal ticket price $20, deductible amount = $30. Similarly, if you pay extra for a cause--buying a license plate that supports a cause like breast cancer research, the arts, autism, etc.--you can deduct the extra fee.

If clothing or goods are donated, they must be in either good or excellent condition. No deduction is allowed for items in poor or fair condition, unless the value of that item is $500 or more, and you have a professional appraisal on that item.

If a car is donated, you must donate it to a charity that will use it (not sell it), or else your deduction is limited to their sales price. If they improve it, use it, or give it to someone who does, you get the full blue book value. If the car, boat or airplane is worth over $500, you must have a written acknowledgement from the charity, and a 1098-C from the charity, which must then be attached to your return.

If the total of all the non-cash donations (furniture, clothing, appliances, etc) exceeds $500 you must send an itemized list of those donations. If this is the case, you’ll need info regarding: a ‘reasonable detailed description” of what was donated (roughly, i.e. “2 sofas, 8 suits, lots of small kitchen appliances”), what organization received it, (name & address), the date of each donation, and the total estimated value you set. Only you can set the value, and it cannot exceed 50% of the original price. Need help with valuating an item? Go to and in the Search box enter “valuation guide”. And again, if you donate any single item of $500 or more you must get a written professional appraisal of the item. The cost of the appraisal is also deductible.

Total Cash/Checks Donated ____________

Total of Non-Cash Items ____________

Total Charity Mileage ____________

If the total of Non-Cash is $500 or more:

Date of Donation _________/09 Name & Address of Charity _________________________

Description of donated property____________________________________________________

Amount you paid, or value when you received it ______________ Deduction _____________

…add more as needed

CASUALTY & THEFT LOSSES These are only deductible to the extent they exceed 10% of your income, and $100 is subtracted from each loss. Please send comprehensive info for this: What was taken/destroyed, When it was purchased, How Much it was worth, How Much (if anything) insurance reimbursed you, and When it was taken/destroyed.

MISC. EXPENSES Tax Prep________ (only if it was NOT included above, in the

Part Three Worksheet, #17 Legal & Professional Services) Safety Deposit Box___________ Investment Expense (for example, a magazine with world or investment news) ____________

Legal fees for securing taxable income, like alimony or interest on a debt ________________ Anything Else? (Amount & explanation)___________________________________________

PART FIVE: IMPORTANT YEARLY DATES

January 1 Record the odometer mileage for all vehicles. Every tax return asks the number of miles you drove in the calendar year. Ideally, contribute the max to your IRA and your 401(k)-type plans for the new tax year, as well as your dependents’ Educational IRAs.

January 15 Final Estimated Tax Payment due for the previous calendar year. If you’ve paid anyone $600 or more, you owe them a 1099 (by Jan 31st) and the IRS a 1096 (by Feb 28th.) Note: if you send it to the IRS electronically, it’s not due until April 2nd. You face a $50-100 fine per person if you fail to file, plus, it may trigger an investigation into whether your contractors should be employees.

February 3 All W-2’s and 1099’s should be received. If not, they’re late. Find out why. Note: If you moved in the year, add two weeks.

February 18 All investment paperwork should be received from banks and brokerages. Be sure to double-check them against your records: a recent study showed one in eight are in error!

March 3 All K-1s should be received. If they’re late, investigate.

April 18 Deadline for filing taxes or extension. Deadline for opening IRAs and Educational-IRAs for the previous calendar year. First Estimated Tax Payment due for current year.

June 15 2nd Estimated Tax Payment due.

September 15 3rd Estimated Payment Due.

October 17 Deadline for Automatic Extension Returns. Deadline for contributions to Personal 401(k) accounts and SEP-IRAs if you already extended your taxes.

December 1st: The most important tax day of the year!!! If your employer has a Flexible Spending Account, see if they have amended it to allow exhausting it by March 15th; otherwise exhaust it by Dec 31st. (These are usually employer-sponsored plans for medical expenses or childcare.) Any monies remaining at the end are forfeited. If you have an investment that’s dropped in value, consider selling it. The loss can be written off against other income, and you can repurchase the investment after 30 days if you choose. If your converted Roth IRA has dropped in value, consider changing it back to a regular IRA. The loss can be written off if you itemize. You can make tax-free gifts up to $13,000 /year/person, so a couple could give a couple up to $52,000/yr. Pay tuition or student loan payments. Make contributions to your children’s (or your) 529 Plan (good for higher education costs) by Dec. 31st. Other bases to cover: Ask employers to over-withhold if you are liable for underpayment penalties. Conversely, if you’re SURE you are getting a large refund, you could ask employers to underwithhold; it’s like getting an early refund. Check your medical expense outlays for the year; will they exceed 7.5% of your adjusted gross income? If so, pay every medical bill you have before year’s end. If not, wait until January to pay them. Defer Income into the following year, if possible. Prepay State Taxes (by the 31st) if you know you’ll owe or if you already pay state taxes quarterly. Prepay property taxes, if your jurisdiction allows it. If you itemize, give as much to charity as you can, including noncash items (furniture, appliances, books, clothing, etc). As long as you don’t carry a balance and can pay in full, charge deductible items by Dec. 31 on a bank credit card (Visa, Amex, NOT Sears, Target). Not paying in full (probably) loses more than the deduction. Charging on a company card (Sears, Target) makes the item deductible when paid off, not when charged. Most fun: If you have large gambling winnings, take a gambling vacation to Vegas or the like; it’s deductible. No kidding!

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