April 15!!…Oops…it's April 16!!!!
by Carmen C. Garcia, CPA
This year, you have until April 16 to file your Federal Individual Income Tax Return, because April 15 falls on a Sunday, Easter Sunday.
April 16…Taxes…IRS…a sharp stick in the eye…a knife in your back…a cold sweat.
If any of these words make you nauseous, there is help for you. The best help you can have is information. Be aware and informed. There is always a solution to your problem although it may not be the easiest one. Awareness, information, planning and action will help take the stress out of taxes.
If it is April 16 and you owe IRS $5,000 and you don't have it, what is the solution? It's too late to do anything about the year 2000, but now is the time to start planning for the next year. Be aware also, that IRS is now a kinder and gentler IRS. By using Form 9465, Installment Agreement Request, and filing it with your return, you can ask for a reasonable installment agreement of your tax due. Usually, sending in a payment with the return, say $500, and agreeing to pay the balance in equal monthly payments for a year or less (say nine payments of $450, plus interest) will usually be accepted. If your request more time than a year, IRS will ask for financial information and will assess you financial situation and determine if more time is warranted.
If you can't file your 2000 tax return on time, be sure to request a four-month extension of time by filing Form 4868 by April 16. Remember that an extension of time to file your return is not an extension of time to pay your tax. The IRS may charge you late- payment penalties and interest on tax you pay after April 16, 2001.
April 16, 2001 is also the deadline for:
- Filing annual gift tax returns if you or your spouse make gifts totaling more that $10,000 to any individual in 2000.
- Amending your 1997 tax return to correct items of income, deductions, or credits that were reported in error or omitted entirely on your original return.
- Contributing to either a Roth or a traditional IRA for the year 2000.
- Establishing a Simplified Employee Pension plan (SEP) for 2000. To give yourself additional time to establish a 2000 SEP, file for an extension of your 2000 income tax return.
- Making a 2000 contribution to a SEP, SIMPLE, Keogh, or 401 (k) retirement plan for your business, unless you file for an extension of your 2000 income tax return.
- Paying the first installment of your 2001 individual estimated tax
In your rush to send your return to the IRS, don't overlook valuable tax deductions.
You can deduct qualified medical, tax, interest, charitable, and some miscellaneous expenses. If you itemize your deductions, consider these often overlooked deductions.
- Long-term care insurance premiums.
- One-time payments for lifetime medical care at a nursing home or extended care facility.
- Medicare premiums withheld from your social security checks.
- Transportation costs paid to obtain medical care including parking,
- Lodging, ground and air transportation, and your vehicle expenses (actual costs or mileage at the rate of 10 cents per mile.
- Remember to calculate medical expenses by excluding the first 7.5% of Adjusted gross income, only the excess is deductible on Schedule A
- Personal property tax based on the value of your property, including auto licenses in counties that issue car licenses based on the value of the vehicle and property taxes on leased vehicles.
- Real estate taxes pro rated on the settlement statement of your home purchase.
- Points or prepaid interest, even points paid by the seller
- Home mortgage interest on your second home, which can include any accommodations with cooking, sleeping, and bathroom facilities (i.e., a boat or recreational vehicle may qualify).
- Interest on a margin account used to buy certain investments.
- Fair market value of property contributed, such as cars, clothing, and household items.
- Travel expenses, including 14 cents per mile or actual automobile expenses.
- Out-of-pocket expenses when serving a qualified charity.
- Job-hunting expenses, including postage, resume service, and travel.
- Investment expenses, including internet service provides fees, if used exclusively for investment purposes.
- Work clothes and uniforms, if not suitable for street wear.
Adding a child to your household can enrich your family, but it can also deplete your bank account. Studies indicate that it costs over $150,000 to raise a child to age 18. Using every available tax break can help you reduce your costs. Check out these possibilities:
Student Loan Interest
- If your child qualifies as your dependent for tax purposes, you may be entitled to a $2,800 tax deduction to 2000 ($2,900 for 2001). Special rules apply to minor children of divorced parents. Generally, if you have physical custody of your child, you are entitled to the tax benefits for your child. If you are not the custodial parent, you may still claim your child as your tax dependent, provided your ex-spouse transfers his or her right to the deduction to you by signing a special IRS form.
- You may be able to deduct up to $2,000 of interest on your child's qualified education loan on 2000. The deduction applies to the first 60 months in which interest payments are required, and you must have the legal obligation to repay the loan in order to deduct the interest. This deduction increases to $2,500 in 2001.
- If you are entitled to claim your child as your dependent, you may be eligible for these valuable tax credits:
- Child tax credit - If you have children under age 17, you might be eligible for up to a $500 tax credit per child.
- Dependent care credit - If you pay day care expenses so you can work or look for work, you may qualify for this tax credit.
- Education credits - If you paid for your child to attend college or vocational school, you may qualify for the Hope Credit or the Lifetime learning credit.
- Earned income credit - You may qualify for this credit if you are a low-income working family. Children increase the credit amount.
Good Luck and start planning for next year!!!
Carmen C. Garcia, CPA, is President and Owner of C.C. Garcia & Co., P.C. a San Antonio CPA firm serving individuals, small businesses and non-profit agencies. Email firstname.lastname@example.org or visit her website at www.ccgarcia.com.