Plan now for tax day 2008

By Dylan Thomas
Free Press Staff Writer

January 08, 2007 05:44 pm

— Tax Day 2007 — not to mention the accompanying headache and heartburn — is still three months away. Why, then, would anyone want to start thinking about Tax Day 2008?
“It’s kind of like planting a garden,” said Eugene Braam, a certified public accountant working in Mankato.
Starting tax planning with the new year makes a taxpayer better prepared for that far-off Tax Day. That taxpayer also has a head start on finding tax benefits and avoiding penalties.
Or, in other words, plant now and reap the rewards later.
So, why not make a New Year’s resolution to prepare better for tax season 2008?
This is a two-part resolution: one, to keep better records; and two, to plan ahead.
Julie Swanson, another Mankato CPA, said detailed record-keeping — starting the first of the year — is key to saving on taxes.
“My experience is you can really increase deductions,” Swanson said.
Find a system that works
Gathering a year’s worth of bills, receipts, pay stubs and other tax documents can be a great source of frustration come tax time. A good record-keeping system can make that entire process much easier.
Chuck Morken, a CPA with Mankato-based Morken Morken & Co., said his solution is to make all his transactions through one checking account. When April rolls around, most of the tax information he needs is in his check register.
“Review what went through your checkbook and that will give you most of the information on your tax return,” Morken said. “... It helps you make sure you report all your income, and that you report the correct amount.”
Swanson suggested keeping a calendar and recording expenses from business purchases or mileage that could be deductible.
“If you don’t keep good notes, you forget,” she said.
Swanson said she keeps a tax file at home with different sections for business expenses or charitable donations, for example. Bills, receipts and other tax documents could also be filed away.
“Think about the paper trail,” she suggested.
Braam said he prefers to track income and expenses with a computer spreadsheet.
“You know what the best system is? Whatever works for you,” Braam said.
Plan ahead for changes
Every year brings changes to the tax laws, and 2007 is no exception. By learning about changes early, taxpayers can take advantage of tax benefits and avoid mistakes.
Swanson said the biggest change may be the new rules on recording charitable donations.
No longer can you drop $5 into the Salvation Army kettle, write yourself a note and claim a deduction. In 2007 donors must keep the receipt, a copy of the check or a record of the credit card transaction to claim a deduction.
Swanson said the dreaded Alternative Minimum Tax seems to be snagging more and more taxpayers in the area every year. In 2007, the threshold for the AMT will be lower, a change taxpayers “definitely have to worry about,” she said.
Business travelers will get a little help in 2007 when the federal mileage reimbursement rate increases to 48.5 cents per mile from 44.5 cents. Reimbursement for medical travel and “moving miles” — the cost of moving for a job in another community — will also increase.
Contribution limits for retirement plans will increase slightly in 2007. Anyone with a 401(k) or IRA should consider increasing their annual contribution, Swanson said.
Morken said teens who get significant unearned income from a parent may get hit with a larger tax bill in 2007. A recent change in the “kiddie tax,” retroactive to Jan. 1 2006, means teens with unearned income exceeding $1,700 may be taxed at their parents’ rate.
All of the tax law changes coming in 2007 are too numerous to list. Each household or individual has to research their particular tax situation or meet with a tax advisor.
But get those seeds in the ground now and Tax Day 2008 could be a rich harvest.

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