Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, April 11, 1994 TAG: 9404110128
SECTION: BUSINESS PAGE: A8 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
With Friday as the deadline for filing for most individual taxpayers, we asked the CPAs for their last-minute tips or suggestions for 1994 tax planning.
J. Patrick Budd of Budd, Ammen & Co.:
Taxpayers in the higher tax brackets should reconsider shifting income to minor children, especially if the child is over 13. Since the new highest tax bracket is 39.6 percent on incomes over $250,000, the tax savings over a period of years can really add up.
In addition, parents or grandparents who anticipate selling stocks to fund education for their child should consider gifting low basis stocks to the child. Then, when the child sells the stock to pay for college, the gain will be taxed at the child's lower rate, which will normally be 15 percent. Be sure to coordinate this with any estate tax issues prior to gifting.
Melinda Chitwood of Brown, Edwards & Co.:
A lot of people cashed in certificates of deposit to make other investments. If you cashed a CD before it matured, the bank probably charged you a penalty on early withdrawal. This penalty is deductible even if you do not itemize your deductions. File form 1040 (the long form) and deduct your penalty on page one, line 28.
Terrence M. Clem of Miller, Morgan & Co.:
Keep good records and start doing this throughout the tax year. Keeping good records will help you in your tax planning during the year and will facilitate a more timely and accurate preparation and filing of your return. Consult a tax advisor whenever you need to determine the potential tax consequences of a proposed transaction or an event that has already occurred. Be prepared to provide all necessary documentation. Through good record-keeping and timely tax planning, filing your tax return should be easier and not result in unexpected, and often adverse, tax consequences.
Gary Duerk of Brown, Edwards & Co.:
You may not need to file. Single taxpayers under age 65 don't have to file unless their gross income exceeds $6,050. Page 7 of the 1040 instructions lists the filing requirements for all the filing statuses.
Virginia doesn't require a return unless the Virginia adjusted gross income exceeds $5,000 for a single person. Page 4 of the Virginia 760 instructions lists the filing requirements for the various filing statuses.
Of course, if federal or Virginia income taxes were withheld from your wages or other income, you must file to claim and receive the refund of the taxes withheld.
Robert K. Flynn of Foti, Flynn, Lowen & Co.:
If you owe additional income tax as a result of the Revenue Reconciliation Act of 1993, take advantage of the election to pay the additional tax in three annual installments. These installments are due without interest.
F. Fulton Galer of McLeod & Co.:
People should not underestimate the advantage of saving for retirement by using an IRA, SEP, Keogh or an employer 401(k) plan. Contributions to all of these are not taxed as current income or are tax deductible in the year the contribution is made.
Because earnings on qualified retirement plan contributions are not taxable, funds accumulate much faster by compounding at a higher rate.
Besides providing for retirement, your contributions yield a higher rate and you get a tax deduction for putting money in these plans. It is one of the best investments you can make.
David Lucas of Lucas & Boatwright
Extension filers be warned - filing an automatic extension request on April 15 does not defer your obligation to pay any taxes that may be owed for 1993. The Internal Revenue Code provides that by filing form 4868 by April 15, delivery of a taxpayer's income tax return can be delayed up to four months. However, payment of any taxes that are expected to be owed is still due by April 15 and is to be remitted with the extension request. Failure to comply properly can subject a taxpayer to penalty assessments.
James B. Taney of Anderson and Reed:
The fewer times an IRS employee looks at your return after it has been filed, the less chance there is that it will be selected for audit. Consequently, you want to do everything possible to ensure that your return goes through the process with the absolute minimum of human intervention.
Accuracy and completeness are most important. Double-check all your calculations and be sure that all supporting documentation is accurate, legible and bears your Social Security number.
And don't forget to sign your return.
by CNB