April 15, 2011 > 10 tips to reduce your tax burden
10 tips to reduce your tax burden
By Alan L. Olsen, CPA, MBA, Managing Partner Greenstein, Rogoff, Olsen and Co., LLP
We are getting close to tax filing deadline. For 2010 returns, the tax return deadline is April 18, 2011 since April 16th is Emancipation Day, and April 15th is declared a Legal Holiday in Washington DC. Some of you may be looking at paying the IRS and looking for tax reduction strategies after year-end.
Here are some tips:
1. Remember to report all income. It is hard to defend the exclusion of income. Reconcile your 1099s and Form W-2 to your tax return.
2. If you have a business or rental property, carefully review all expenses that were ordinary and necessary for the production of income.
3. Look for deductions to charities and costs associated with charitable work. Charities are required to give you receipts for goods and services donated to them during the year. But some donations may not be the responsibility of the charity. For example, did you donate goods or services like driving the scouts to camp? You can deduct 14 cents a charitable mile. The tax court also said that hiring a babysitter while you performed charitable work is also deductible. Out-of-pocket costs for charitable services add up to more deductions.
4. Can you make a contribution to an Individual Retirement Account (IRA)? If under 50 years of age at the end of 2010, you can contribute the smaller of $5,000 or taxable compensation for 2010. If over 50 years of age at the end of 2010, you may contribute up to the smaller of $6,000 or earned taxable compensation in 2010. The amount that you are allowed may be reduced depending on your Adjusted Gross Income (AGI). IRA contributions can be made up to April 18, 2011 and count as a 2010 deduction for income tax.
5. Do you have any tax credits that you can claim? Following is a list of credits to consider: earned income tax credit, Health coverage credits, child tax credit, child and dependent care credit, education credit, foreign tax credits. If you qualify for tax credits they may reduce your tax dollar for dollar.
6. If you inherited property and then sold at a gain, remember to step your cost basis up to the FMV at the date of death. This is often overlooked when preparing tax returns.
7. If you are a member of an LLC, did you incur any supplemental business expense that you did not submit for reimbursement? You may claim these expenses on Form 2106, Employee Business Expense, or Schedule SBE for Supplemental Business Expense.
8. If you were out of work, remember to review all costs associated with job hunting and starting a new job. (resume writing, travel expenses to interview for new position and moving expenses). For 2010, unemployment is also not subject to tax.
9. If you were fortunate to sell founder stock, be sure to review if you qualify for a 1202 exclusion on your capital gain. Depending on when you started your business you may exclude up to 75% of the gain from regular and alternative minimum taxable income. Also, starting in September 2010 (and continuing for 2011 and 2012), if you started a new Qualified Small Business you may exclude up to 100% of the gain if the stock is held for five years.
10. Remember it is okay to take the deductions if you have substantial authority for the expense. Substantial authority includes private planes to visit your rental property, paying kids in your business, and business convention expenses in Hawaii or Bermuda. Know the tax rules and how to tax advantage of lowering your income tax burden.
Alan L. Olsen is Managing Partner at Greenstein, Rogoff, Olsen & Co., LLP, a leading CPA firm in the San Francisco Bay Area. With more than 25 years of experience in public accounting, Alan works with some of the most successful venture capitalists in the world, developing innovative financial strategies for individuals and businesses. For information on filing your tax return this year, contact Alan at 866-CPA-2006 or at www.groco.com.