Simplifying Your Own taxes

The trite and true answer to anyone who asks how to eliminate his/her income tax has long been to stop working.  No income = no income tax.  Since our taxes are not at 100% level, and most of us appreciate the good things we can do with money, that is not a very realistic approach; so we are forced to deal with the income tax system.

This advice column on how to simplify your taxes from Jonathan Clements strikes me as similarly naive.  While his idea to have good records is obviously something I have always endorsed, his others ideas are not the most practical. 

While it is true that fewer stock trades would save time in preparing Schedule D, that is a crazy way to make investment decisions. If a stock has peaked and on the way down, it would be ridiculous to hold onto it just to reduce the tax return paperwork.

Likewise, the recommendation to avoid partnerships is overly naive.  There are plenty of very good reasons to use a partnership or LLC format for certain business endeavors.  With several clients, each having dozens of partnership investments, it is a bit of a hassle to integrate all of their data into a 1040.  Luckily, my Lacerte software does an excellent job of making that task as painless as possible.

The advice to refrain from claiming the home office deduction is extremely short sighted.  While it is true that the actual dollar amount of the deduction is often relatively small, that doesn't account for the full range of benefits.  For example, having a home office allows all miles driven to be deductible, rather than have a lot of nondeductible commuting miles to an outside work location.  I have actually amended dozens of tax returns where we added in the home office and saved thousands of dollars in taxes just from the additional deductible miles, while the actual home office deduction was just a few hundred dollars.

KMK

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 4/09/2003 01:27:00 PM Send this post: