As another year moves swiftly toward the end, CPAs look toward the coming tax time and like to give advice to their clients. Stressing that all individuals and businesses have different needs that require specific solutions, these practicing accountants gave some general tips to consider.
Carl Nicholson Jr. of Hattiesburg said, “Historically, we review situations with our clients and determine what advantages they can take with tax laws and where they stand with capital gains and losses.”
In the accounting profession since 1967, he said his firm’s larger clients inform them of their standing monthly or quarterly to receive the most help possible. He believes doing good tax work and getting the best breaks are all about planning ahead.
Nicholson lists three simple points:
• Find a good CPA
• Make sure his or her background is best for your business or industry
• Keep good records.
Paul W. Calhoun of Jackson is vice president of the Mississippi Society of Certified Public Accountants and a partner in Haddox Reid Burkes and Calhoun. He suggests:
• Make any contributions you want to make before the end of the year
• Keep up with information on contributions and get receipts for non-cash items
• Consider giving appreciated stock rather than cash
• Look at portfolios to see how they’re doing and make sure capital gains and losses match up
• Take care of any deductible items such as home mortgages and property taxes before the end of the year
• Don’t forget to accumulate business mileage
• Purchase any business equipment before the end of the year. Up to $100,000 can be deducted on acquisitions made in 2004.
“Everyone should check with their advisor before the end of the year so they can find what will help them the most,” said Calhoun, an accountant for 29 years.
He also reminds anyone who hasn’t filed a 2003 return that October 15 is the last day to file. After that date, anyone filing is subject to fines and penalties.
Betty Lou Reeves, a tax partner in the Jackson firm of Smith, Turner & Reeves, says that planning ahead and meeting with a financial advisor or CPA are the most important actions to take.
“At the end of the year when you’re thinking about taxes, it’s also a good time to think about other personal matters,” she said. “That could include updating wills, retirement and investment plans and obtaining a healthcare directive and setting up a durable power of attorney. These matters are critical and I try to talk to people about them.”
She lists some traditional tax strategies that all professionals use, including:
• Accelerate or defer income, depending on the bracket you will be in this year versus next year
• Maximize itemized deductions
• Claim every possible exemption to which you are entitled.
“It’s no fun to have an unexpected tax liability in April. That’s one reason to work with a professional and to think ahead,” she added. “For most middle income taxpayers, if you know what your income and deductible items are, compute your taxable income and apply the rate of 25% to see where you are. You’ll know you’re in trouble if your federal withholding plus estimated tax payments are not at least that much.”
Reeves, who’s been a CPA for more than 20 years, says new tax legislation, the Working Families Tax Relief Act of 2004, extends and expands popular tax benefits, some that were set to expire. The act extends the marriage penalty relief and child tax credit through 2010, extends the alternative tax relief through 2005, extends a long list of individual and business tax benefits through 2005 and provides assistance to military families.
“It would be worthwhile to look into it,” she said. “The alternative minimum tax is affecting more and more people.”
Affiliated with Ernst & Young, Beau Minvielle says there’s some fairly standard planning advice they give clients that, like the other CPAs, includes planning ahead and talking with professionals.
He had some specific advice for Gulf Coast residents who had casualty losses not covered by insurance, due to a storm.
“If you itemize deductions, pay special attention to anything not covered by insurance. The key is that anything you were made whole on is not allowed,” he said. “The loss must exceed 10% of adjusted gross income, reduced by $100 per loss.”
Everyone, he feels, should determine his or her capital gain or loss position for the year. “If you are in a capital loss position, you may want to look at capital gain assets you want to sell and consider selling them in this calendar year,” he said. “On the flip side of the coin, if you’re in a capital gain position, look for items that have built in losses that you can harvest this year to offset gains.”
He says it’s a good idea to prepare a schedule of gains and losses and to be aware of the Wash Sale Rules and how they might apply.
Additionally, Minvielle notes that anyone planning to make annual gifts should do so before Dec. 31. The amount of $11,000 per gift per person can be given without any tax consequences.
Contact MBJ contributing Lynn Lofton at email@example.com.