In eight previous columns, I discussed my use of “tax tidbits” to enliven conversations when talking taxes with clients or speaking to groups like business owners and home sellers. The tidbits discuss amusing court decisions and tactics that trim taxes.
I‘d like to share more of my favorites with you here:
It pays to get a jump on spring cleaning. Yet another way to reap deductions for charitable contributions is to clean out and donate the contents of your closets, attic and garage now, rather than waiting until next spring. Just make sure to get a receipt showing the fair market value of what you donate. Otherwise, the tax takers may disallow all or part of your deduction. If the charity doesn’t give a receipt, prepare your own detailed description listing clothing, furniture and so forth.
When you use Form 1040’s Schedule A to claim a deduction of over $500 for non-cash gifts of property like clothing and toys, there’s some additional paperwork. The IRS requires you to complete Form 8283.
Make tax planning a year-round job. The latest available figures reveal that the average American spends more than twice as much for government as for food.
That disheartening statistic underscores just how costly a mistake it is to think of federal income taxes as simply a once-a-year affliction caused by the need to grapple with Form 1040. Instead, what you ought to do is crank taxes into your financial planning throughout the year. You might be pleasantly surprised to discover the scores of tax-saving opportunities that most individuals overlook each year. The savings can add up to thousands of dollars.
Effective tax planning. The first step for effective tax planning is to organize that ever-growing accumulation of records in your desk drawers, closets, and other storage spaces. Also, if you’ve been remiss, resolve now to reconstruct missing or incomplete records before they become hazy in your mind.
Haphazard records can cause you to needlessly lose money to taxes. The better the records you keep, the easier it is to search for opportunities, which is what tax planning is all about.
When it comes to sorting through financial papers, err on the side of caution in deciding which ones to save and which to toss out. To make the chore manageable —and to reduce the likelihood of mistakes—limit yourself to a single category of records at each sitting. For example, tackle all records dealing with investments one evening, insurance another, and so on. Incidentally, this do-it-yourself undertaking provides valuable side benefits: less-cluttered storage spaces and a clearer picture of your financial affairs.
Resign yourself to a bit of paperwork if you move or otherwise change your address after filing your return. Use Form 8822 (Change of Address) to notify the IRS. Reporting the change should ensure that you receive and are able to respond to mail the agency subsequently sends— for instance, a bill for additional taxes or a notice that it has selected your return for an audit.
Expecting a refund? Also notify the Post Office for your old address. This will help in forwarding your check to your new address (unless you authorized the IRS to directly deposit the refund into your checking account).
All that Form 8822 asks you to provide is your old and new addresses, your full name and Social Security number, and, if you’re a joint filer, your spouse’s full name and Social Security number. The IRS generally takes 4 to 6 weeks to process a change of address.
You can print Form 8822 and other forms at online at IRS.gov/forms. To get forms and schedules in the mail go to IRS.gov/orderforms to place an order.
The budget-beleaguered and understaffed IRS wants to help if you’re unable to order online. Just call 800-829-3676 (800-TAX-FORM). But depending on when you call, you might have to endure a lengthy wait to speak to someone.
Look for more tidbits in a subsequent column.
Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 300 and counting).
About Julian Block
Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes” (Wall Street Journal), and “an authority on tax planning” (Financial Planning magazine). More information about his books can be found at julianblocktaxexpert.com.