filing

1. married and filing separately
2. You can get an extension under these conditions
3. How you can avoid late penalties
4. Some frequently overlooked deductions
5. Hobbies can make tax-time horse sense
6. Tax-deductible travel for you and your spouse
7. How to deduct expenses for your in home computer
8. What to do if you can't document business deductions
9. How to get a personal loan and deduct ALL the interest
10. What are your miscellaneous deductions

• If, for example, you live in a community property state, since all community income and deductions are split half-and-half between returns, and spouses can end up in sharply lower tax brackets.
• If one spouse has extraordinarily high medical expenses, since these expenses are in a joint return, they are deductible only to the extent that they exceed 7.5 percent of joint adjusted gross income. Filing separately, the spouse with the high medical expenses could take a large deduction that might be completely lost in a joint filing.
• If you live in a state with state income tax. In this case, the savings in that tax, in a separate filing, could be considerable - could, in fact, more than offset any increase in federal taxes you suffer as a result of not filing jointly.
• If, for any reason, one of the spouses wishes to keep his or her total income, or its sources, a secret.
• If, for some reason, the spouses wish to avoid joint liability for taxes due or any penalties that might accrue, since in a joint filing both husband and wife are liable for the full amount of tax due.

• You lack information needed to complete your return, such items as income data from an employer or 1099 forms from investment-income sources.
• You need time to raise cash to make a contribution to a Keogh plan. Such contributions can be made as late as October 15.

• A first extension - of four months, to Aug. 15 - is automatically granted if you file IRS Form 4868 by April 15 and pay, in advance, the tax you estimate you will owe once you file. It is imperative that you pay this estimated tax when you ask for your extension; if you don't the extension will be denied out of hand. If that happens, you'll owe not only your tax but also late charges and penalties. At the same time, you'll need (by April 15) to file a Form 1040 es and pay estimated taxes for the first quarter of the current year, so your out-of-pocket payments are likely to be steep, even with an extension.
• A second extension - of two months, to Oct. 15 - is not automatic. Valid reasons for the extension must be given (the loss of tax records or a death in the family, for example). If you do get a second extension, it's wise, tax experts avow, to file as close to the Oct. 15 deadline as practical, since that late filing reduces your chances of being red-flagged for an audit. (who named it a dead-line?)

• If you file late without obtaining an extension, you face a penalty of 5 percent per month of your unpaid tax, up to a maximum of one-quarter of the unpaid tax.
• If you file later than 60 days of the filing date, you also face a penalty of the lesser of a $100 fine or 100 percent of the tax due.
• The penalty for late payment of taxes (as opposed to late filing) is 0.5 percent of the unpaid tax per month up to a maximum, reached in 50 months, of 25 percent.
• Interest is also charged on the unpaid tax.

• I filed my return on time but sent it to the wrong office.
• I filed on time but had insufficient postage.
• I tried to file on time, but got some misinformation from an IRS employee.
• I couldn't get records I needed from the IRS, even though I asked early enough; or couldn't get information from an IRS official, even though I visited an IRS office.
• I was seriously injured or forced to be away from home for reasons beyond my control.
• "I died."
• I was ignorant of the law in that I'd never had to file a particular form or forms before.
• I suffered an incapacitating illness or suffered through the death or serious illness of a family member.
• I was told by a qualified tax preparer that I didn't have to file a return.

• So-called points, or loan origination fees, paid to obtain a mortgage on a principal residence.
• That portion of real estate taxes paid during a given tax year on a home sold during the same tax year.
• Appraisal fees for donated property
• Malpractice insurance fees
• Professional licenses
• Mortgage prepayment penalties
• The taxpayer's portion of co-op or condominium real estate taxes
• Moving expenses associated with obtaining a new job, including the cost of selling residence or breaking a lease.
• Professional magazines and other publications related to the taxpayer's job
• Job hunting expenses, including such items as employment agency fees, resume typing services and the like.
• Educational expenses associated with the taxpayer's work
• Transportation expenses associated with a second job, provided one goes directly from his first place of employment to his second
• Transportation expenses associated with medical care

• Remember this one main difference between a hobby and a business: If your hobby is indeed a hobby, you CAN deduct expenses, but only to the limit of income, if any, derived from the business, you can deduct expenses even if they exceed business income.
• In order to prove your hobby is a business, you must, however prove that your intention was to make a profit. Normally, the IRS will not challenge such a claim if you show a profit in the endevor in three of any five consecutive years.
• Make sure you operate your hobby-business in a businesslike manner. Keep detailed records of all expenses and income, receipts for any expenses, detailed travel records, etc.
• It's a good idea to meet - and keep records of any such meetings - with consultants and recognized experts in your field and then to follow the advice you get from these experts.
• You help prove your intent to profit by hiring qualified people to help in your business, even if only on a part time basis. And remember that YOU need not work 40 hours weekly in your hobby.
• Have business cards and stationary printed, and, if you're using a name other than your own, file a "doing business as" statement with your county clerk (an easy and inexpensive process). It helps prove your intent to earn a profit if your hobby is one in which you made a profit in the past.
• Take out a company listing, if possible, in your local Yellow Pages.
• Advertise in local newspapers, even if only in the classified section.
• Set up a business bank account.
• Keep very careful records of any and all capital expenditures (computers, an auto solely for business purposes, office equipment, etc.).

• First, make a deal with a local newspaper to write about whatever vacation location you plan to visit next.
• Before your trip, study local publications to learn the "formula" for travel writing and the types of photos publications usually print; also, read about the location you're about to visit so that you'll be able to write intelligently.
• Try to determine, before your trip, what your "angle" will be. You might, for example, write about oil wells in Nigeria, or the antique shopping available in St. Augustine, Florida.
• Start writing your article and taking pictures (color digital, along with some black and white) as soon as you arrive. Give yourself plenty of time.
• Make it E-Z for the editor or travel editor of the publication you decide to deal with, to receive your email, and in the publication.
• Make sure you receive some pay (no matter how much) and, just as important, that you get a byline for your writing and your spouse gets photo credits, printed in the publication. Save copies.
• On your next trip, then, you can claim all business related expenses, provided you're working on an article for publication, even if the article is never actually published. (Blog it)

• The computer must be required for the convenience of your employer and must be a condition of your employment.
• The computer must be used 50 percent or more for business in order for you to qualify for tax breaks including first-year expenses and the accelerated system of depreciation.
• You must keep a record of all use of the computer, both business and non-business, in order to prove you have correctly computed the percentage of business use.
• The best way to document is to keep in the computer a record of all use (the amount of time spent), the program run, and the purpose of the program.
• Keep complete records of all computer-related expenses, including those for paper, ribbons, diskettes, software, and repairs, along with, of course, receipts and cancelled checks.
• The more extensive your records, the better your chances of having your deduction approved. If nothing else, swamp the IRS with paper work.

• First, find out what items on your return are to be examined. You have a right to know and you may only have to deal with one or two items. Tell the examiner or agent without letting him know your records are not up to snuff, that you need to know what he'll be looking at, so all your records will be at hand for your first meeting.
• List all the individual items you totaled to arrive at your final (deductible) figure. Make sure your math is correct.
• Attach to this work sheet all the documentation you have at hand (receipts, cancelled checks, etc.) for each individual item.
• If you have no written proof of individual expenditures, write down as much as you possibly can about the expense: how much was spent, when and where and if possible, with whom. Remember that you can provide affidavits from third parties (a guest at a business lunch or dinner, for example).
• Remember that businesses often keep detailed records of their own of cash transactions. Often, copies of these records can be obtained to verify your expenses.
• Perhaps the greatest key to establishing your credibility: showing up for the audit on time, well-organized and with as much information as you have.
• Be helpful, but don't answer any questions that aren't asked.
• "Cash" donations to recognized charitable organizations must be proved (if you're audited) by receipts, cancelled checks or the like, or by third party affidavits.
• Gifts of clothing, used books, appliances, autos, etc. should, ideally, be substantiated by receipts. If, however, you can't produce such receipts, show bills of purchase for the merchandise donated.
• Describe, in detail, each item donated, including its quality, its brand name, the store from which was purchased, and date of purchase.

In every case, the more detailed your report, the better your chances of obtaining the deduction you seek.

• If you need money for any purpose and have sufficient home equity, you can borrow the funds, using your equity as collateral up to $100,000, and deduct the interest payments just as you do when making a regular mortgage payment.
• If you own stock in a margin account, you can sell shares to provide money for your personal use and then buy the shares back on margin. Interest on margin loans is deductible. Make sure, though, you keep detailed records of this transaction.
• It is important to note that the so-called "personal interest" deduction (other than when obtained through the strategies outlined above) disappeared entirely in 1991.

• Employment agency fees to obtain a job
• Dues and assessments paid to a labor union or dues to a professional organization or chamber of commerce
• Job hunting expenses provided you're looking for a new job in your current occupation (even if you don't get a new job)
• The purchase and laundering of required work clothes and special work clothes that can't be used for regular street wear, including protective gloves, safety equipment, hard hats and steel toe boots
• Small tools and other supplies used in your work if those tools and supplies have a life expectancy of less than one year
• The cost of any professional trade journals used in your work
• Financial publications and investment counseling fees paid by an investor
• Subscriptions to any investment publications
• Fees for safe-deposit boxes
• Tax counseling fees paid for the preparation of your income tax return (also includes the cost of any books or magazines you buy to help in tax preparation)
• The expenses of an income producing home hobby
• Any legal expenses necessary to produce taxable income (incorporation fees, for example)
• Medical examination fees if they're required for employment or if such an examination is a prerequisite of employment
• Investment counseling fees paid to oversee investments for producing taxable income. Even transportation fees may be deductible provided you're not just going to your broker's office to watch the tape
• The business expenses of a handicapped individual, so called "impaired-related work expenses" (such as the presence of an attendant at the individual's place of employment)
• Gambling losses to the extent of winnings, including the cost of any lottery tickets