Get to Work on Your Tax Return How to get your affairs in order and make sense of the ever-more-complex tax code

Unless you get a kick out of standing in line at the post officeat midnight on April 15, turn off the TV, cancel some socialengagements and get busy on your tax return. Tax professionals saythat while there are a few changes affecting small-business ownersthis year and last, bigger changes are on the way. "Congresshas set up 10 years of tax professional heaven," says PaulGada, a tax attorney who edited the CCH Business Owner'sToolkit Tax Guide 2002. "There are 400-plus amendmentswith changes being phased in over the next 10 years affectingestate planning, IRAs, child tax credits and dependent carecredits."

Despite all the upcoming changes, Gada says currentcongressional support for reducing the personal income tax ispositive, "because it translates directly into some savings inthe business owner's pocket." Here are some tips toconsider while working on your 2001 tax return and developing a taxstrategy for 2002:

• Don't be a slob. Organizing your business-relatedreceipts and company financial records will save you time andmoney. There's no excuse not to use bookkeeping software thattracks and categorizes dollars coming in and going out of yourbusiness. If you don't have a good program, buy one. Review thequarterly spending reports many business credit card companiesissue to make sure you deduct all legitimate business expenses.Review phone bills, utility bills, rent invoices and receipts fromoffice supply stores to compile all your expenses. Remember, underSection 179 of the tax code, you can deduct $24,000 worth of officeequipment and supplies purchased last year, so I hope you wentshopping before December 31, 2001.
• Double-check your arithmetic and make sure you enter theright information on the right lines of your return."Carefully go through the form and pause on each item,"advises Gada. Verify that you've included your kids' SocialSecurity numbers, and sign the return wherever indicated. "Youwant to avoid a second look by the IRS, so make sure you haveincluded all relevant information."
• Don't forget to fund your IRA or SEP-IRA. Too manytaxpayers forget to write a check to their retirement accountsbefore April 15. You can help your employees establish a SEP-IRA(simplified employee pension individual retirement account) so theycan deposit 15 percent of gross income, up to $35,000. "Thebusiness owner's maximum contribution is the net earnings ofthe business, minus the deduction for one-half the self-employmenttax, multiplied by a percentage that is somewhat lower than thepercentage to used to compute the employee'scontribution," explains Gada. Check with your tax advisor fordetails.

  If you are 50 or older, you can contribute $500 more to your IRAin 2002. This so-called "catch-up contribution" affectsmillions of baby boomers.

• Balance out your investment gains and losses because the newfive-year holding period goes into effect in 2002. If you holdan investment for five years, the maximum capital gains tax dropsfrom 20 percent to 18 percent. If your losses are greater than$3,000 (the most you can deduct for losses in one year), you candeduct the remaining amount next year.
• Review your assets to determine what can be depreciated.To qualify for depreciation, Gada writes in his book that an assethas to be used in a business or trade; have a finite period ofusefulness that is longer than one year and "wears out,decays, gets used up, becomes obsolete or loses value from naturalcauses." You cannot depreciate land or improvements made toproperty, including clearing, planting or landscaping.
• If you work at home, you can deduct the portion of yourhomeowner's or renter's insurance used to cover yourbusiness. You can also deduct a portion of utility payments,repairs or cleaning services. If you are claiming the home officededuction, fill out Form 8829, Expenses for Business Use of YourHome, and attach it to your Schedule C.
• You can't deduct the value of your donated time, but youcan deduct the out-of-pocket expenses related to working with acharity. You can deduct 14 cents per mile, or the actual costof gas and oil if you drive your car to do your charitable work.Remember, donations to political groups or candidates running foroffice and dues paid to your country club are not deductible.

Gada's final piece of advice: "Claim all income andtake all deductions you qualify for."

Jane Applegate is a syndicated columnist and the authorof 201 Great Ideas for Your Small Business. Fora free copy of her "Business Owner's Check Up," sendyour name and address to Check Up, P.O. Box 768, Pelham NY 10803 ore-mail it to info@sbtv.com.