Are you paying too much in income tax? 

The best way to be certain you are not paying too much income tax is to make sure your tax preparer understands your full situation. Most people do not mind paying their fair share of taxes, but do not want to over-pay. Each year I get new tax clients and notice that a number of them have over-paid their income tax the previous year, or years. Last year amended returns resulted in refunds ranging from $500 to $2,500 for my clients. Your initial reaction probably is that the prior tax preparer did not know the tax code. I don’t think that is the case, however. The problem is generally in the exchange of information between the client and the tax professional. I hear statements such as “No one asked me that before” or “I just drop my stuff off”. 

The most critical part of the tax process is the interview of the client by the tax professional. The tax person must ask questions to find out as much about their client as possible. The client can not be expected to know what information is relevant and what is immaterial. The client is coming to the tax person because they don’t know the tax law and probably don’t want to know it! The more your tax professional understands of your unique situation the more opportunities there are to identify deductions you are entitled to. Therefore, pick a tax preparer who will take the time to learn about you and your finances. It will probably mean more money in your pocket. 
Printed in the Deckerville Recorder January 18, 2006

Charitable Contributions of Vehicles and Boats

Over the last several years it has become common to hear and see advertisements urging us to donate our older, used vehicles to some charitable organization. The ads usually implied that we could determine the fair market value of this vehicle. In other words, a vehicle that could be sold for $500 could instantly have a value of $5,000 once donated. This would allow you to claim a $5,000 charitable donation on your tax return. The 2005 tax law has addressed this issue and brought some needed changes.

If you donate a vehicle, boat or aircraft to a charitable organization beginning in 2005 the deduction is limited to the gross proceeds from its sale. A vehicle donated to an organization and sold for $750, for instance, would allow the donor to deduct $750 as a charitable donation. This new law applies if the value is greater than $500. However, this is the tax code and there are exceptions! The fair market value may be used if the organization uses the vehicle rather than selling it, significantly improves the vehicle, or donates the vehicle to a needy individual. In these instances there would not be a relevant sale price to use to determine value. In this case it seems as though the law now provides for more equitable deductions. Whether this will curtail donations to these organizations is yet to be determined.

How Will Changes in the Tax Law Affect Me?

Every year the tax law changes as Congress enacts new legislation. As taxpayers we want to know how these changes affect us. There are a number of changes for 2005 and it appears as though many of them will reduce our taxable income. Here are several changes that should decrease the amount of tax we pay this year.

The personal exemption increased from $3,100 to $3,200 in 2005. The taxable income of a family of four would be reduced by $400 because of this change. The standard deduction also increased in 2005. Married taxpayers filing jointly may claim a $10,000 standard deduction, a single taxpayer $5,000, and head of household $7,300. These represent a $150-$300 increase from the previous year. In addition to giving a higher standard deduction, it also means that fewer people will qualify to itemized deductions.

In an effort to increase personal saving toward retirement, IRA contribution limits have increased from $3,000 to $4,000. A taxpayer age 50 or older may contribute an additional $500 for a maximum total of $4,500. This is good news for people with extra money to invest and want to reduce their income tax liability. Even though it is 2006 already it is not too late to contribute to an IRA. The tax law allows deductions for amounts paid up to April 17 this year.
Printed in the Deckerville Recorder January 25, 2006