TIP 1. Record Keeping

Our tax system collects income information from various 3rd parties. Each of us must provide the bulk of our deductions, exclusions and credit information. Often the key to reducing tax is keeping good records. 

Two tax related documents that are commonly overlooked (and thus often misplaced):

·          HUD Closing Statement:  When buying, selling, or refinancing a house, the actual gain or loss is usually tax-deferred; however, there are often tax and interest items on the closing statement that will affect your current year deductions.

·          Stock Purchase Confirmations: Although stock transactions are not taxable until sold, the nontaxable basis of sold stock is determined from the purchase information.  Since many years may pass between the purchase and sale of stock, often the purchase information gets lost or misplaced.  If brokerage companies have changed during that time, it may be very difficult to track down accurate purchase information. 

TIP 2. IRA Contributions

Most people wait until the last moment for tax purposes to make contributions to their IRAs.  However, in order to maximize the benefits of tax-free accumulation available from an IRA, contributions should be made as soon as possible in the year (as well as taking required distributions as late as possible.)  Consistently contributing at the beginning of the year as opposed to the end of the year can make a difference of tens of thousands of dollars by the time an individual reaches retirement.    

TIP 3. Deductible Interest

Analyze your debt and consider restructuring it to maximize your interest expense deduction. In certain cases you may be able to refinance personal debt, which is not deductible, to mortgage interest, which is deductible, subject to limitations.

TIP 4. New Mileage Rates

The IRS has released the new optional standard mileage rates for 2011 for use in computing the deductible costs of operating an automobile. 

Beginning January 1, 2011 through June 30, 2011 the standard mileage rates will be:

·          51 cents a mile for all business miles driven     

·          19 cents a mile when computing deductible medical or moving expenses

·          14 cents a mile when giving services to a charitable organization

Beginning July 1, 2011 through December 31, 2011 the standard mileage rates will be:

·          55.5 cents a mile for all business miles driven    

·          23.5 cents a mile when computing deductible medical or moving expenses

·          14 cents a mile when giving services to a charitable organization

TIP 5. Itemized Deductions

1. Arizona allows 100% of your medical deductions. There is no 7.5% of adjusted gross income subtraction.
2. Personal Property Tax (Car tags) is often forgotten. Only the value or lieu tax is deductable. Most people provide the amount of the check written to ADOT, which overstates the deduction by about $10 per car per year in Cochise County. Further, we most often do not know what has been provided, the tax amount or the check amount, and have to ask.By going to servicearizona.com/webapp/feeRecap/ you can get a printout for all your vehicles that break out the deduction and if you pay extra for the various charity plates, it provides the charitable deduction. Please provide us with this printout.

3. Charitable deductions, cash or non-cash, must be supported by bank records or receipt, letter or other written communication from the donee, indicating donees name and the date and amount of the donation. Such documentation must be in hand prior to filing the tax return. If non-cash contributions exceed $500.00 a Form 8283 is needed (an input sheet for this information is provided in your organizer). Further, if you give $250.00 cash or non-cash, or more at one time to one donee, that donee must provide a statement prior to filing your return, what goods or services, if any, were exchanged for your donation. The Salvation Army, Goodwill, etc. provide lists of values for items commonly given. Goodwill list can be found at goodwill.org/page/guest/about along with other helpful information. Click on “Donate goods” then “Tax deduction”. If you are donating a vehicle or goods valued in excess of $5,000 please contact us prior to making the gift. You, the donor, must value your gift. Neither the tax preparer nor the donee can establish value.

TIP 6. Kiddie Tax

Your dependent children under the age of 19 on 1/1/11, or a full time student under age 24, with interest and/or dividend income in excess of $950 or total investment income in excess of $1,900 will be taxed at the higher of their rate, or that of their parents.

TIP 7. Mortgage Interest

The post October 13^th 1987 acquisition indebtedness may not exceed $1 million and home equity indebtedness (non-acquisition debt) can not exceed $100,000.  Acquisition debt includes debt for substantial improvements.

TIP 8.  Employer Proved Cell Phones

The Small Business Jobs Act of 2010 removed cell phones as a "Listed Asset", requiring difficult record-keeping. IRS Notice 2011-72 notes that an emplyer-provided cell phone would be a taxable fringe benefit unless it was provided for noncompensatory business reasons and not to just promote employee morale. If the employer-provided cell phone is for noncompensatory business reasons, any personal use will be treated as a non-taxable de-minimus fringe benefit.

TIP 9.  Joint Tenancy, Joint Tenancy with the Right of Survivorship, and Other Types of Joint Tenancy

Many people hold real estate, bank accounts, stocks, etc. in some    type of joint tenancy to avoid probate and create liquidity after their death. This sounds good, but....

The entire asset is subject to the creditors of both owners.

Either owner can use the entire asset, leaving the other owner nothing.

Either owner can transfer his/her interest, breaking the joint tenancy.

In community property states, you only get a 50% step-up in basis on the 1st tenant to die.

There are much better ways to avoid probate.

TIP 10. What is Use Tax?

Use Tax is charged to a residence of one jurisdiction when they purchase goods form another jurisdiction and pay no sales tax or less sales tax than they would have paid to the resident jurisdiction and use or consume the items in the residence jurisdiction.

Arizona and the city of Sierra Vista and Douglas have Use Tax. Arizona for the first time has a line on their income tax return to report Use Tax. To report Use Tax to Sierra Vista or Douglas you must use a form TPT-1 available online from azdor.gov. Arizona Use Tax rate is 6.6 %, Sierra Vista rate is 1.75%, and Douglas rate is 2.5%.

If you reside in Sierra Vista and order a $100.00 item without paying sales tax, you would owe $6.60 to Arizona and $1.75 to Sierra Vista. If you paid $4.00 tax on the same item when you bought it you would owe Arizona $2.60 and Sierra Vista $1.75. If you bought the same item in Huachuca city, which has a 1.5 % rate you would owe $0.25 to Sierra Vista or if that item was food, not taxable by Huachuca city, you would owe $1.75.

The state of Arizona has determined that you not only have to pay Use Tax, you have to keep track of it.

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