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Like most taxpayers, you probably receive tips from your accountant when you have your return prepared in March or April. Then, eight months later, you’ll sit down with your tax pro to squeeze out every possible tax break for the calendar year. Such steps should point you in the right direction, but you may be placing yourself at a disadvantage.
Tax planning should be a year-round process, and a midyear meeting can prove to be especially effective. To start, identify potential tax savings on the state and local levels (see chart, "State by State Tax Cuts"). To help you meet your goals, black enterprise has provided you with a checklist of tax measures as you evaluate the first half of 1999 and plan for the rest of the year.
KEEP THE TAXMAN AT BAY
The following guidelines will help you estimate your taxes and identify expenses so that you will not have any more to worry about than the Y2K bug. Here’s how you can steer clear of some rather unpleasant surprises.
Estimate your tax burden. If you received a large tax refund this year, then you gave the IRS interest-free use of your money. To curb such future generosity, adjust your W-4 form to claim more dependents and, in turn, receive additional cash from each paycheck. The same is true if you’ll be entitled to larger tax deductions this year. "My wife and I recently bought a town house," says Roland Laird, a software engineer and entrepreneur in Princeton, New Jersey. "Now, we’re getting deductions for mortgage interest and property tax. As renters, we had no deductions." Before you adjust your W-4, though, check with your accountant to make sure you don’t go too far — and wind up owing money to the IRS next year.
"Keeping track is especially important if you operate an S corporation," asserts Jerome Thomas, chairman and COO of Exceptional Restaurant Co. in Norcross, Georgia. "The company’s net income will pass through to your personal tax return. If you monitor your company’s performance, you can adjust your withholding, making sure that you pay enough but not too much."
Keep in mind that if you owe $1,000 or more in income tax, aside from withholding, you’ll have to pay quarterly estimated taxes in 1999. To avoid a penalty, the total of your payments must be at least 100% of the tax you paid in 1998, allocated evenly among the quarterly periods. With estimated taxes due on June 16 and September 15 this year, now is a good time to make sure you’re paying enough to avoid a penalty.
Take advantage of educational deductions. At this time of the year, you may be considering summer school or preregistration for fall classes. Such costs will be fully deductible if the course work helps you to "maintain or improve" the skills needed for your current job. You’ll slam into a brick wall, however, if you seek tax breaks for classes that prepare