Adjustments

I just finished reading last week’s column and , boy, was it dry. I’m going to try never to do anything that dull again. But there are a few more adjustments to income that come before “adjusted gross income”, most of which have to do with being self-employed. So bear with me a minute and I’ll try not to be too bad.

The most frequent of all the adjustments is one-half of the self-employment tax. If you screw that up the IRS will fix it for you, and the computer programs do it automatically. It shouldn’t be a problem for anyone because it is so obvious. But most other adjustments you have to know or you forget to mention them to the preparer and they get missed.

Next is part of your self-employed health insurance. If you itemize, put part of it here and the rest on schedule A. It makes a difference where you put it. Really. Then there are contributions to some other types of retirement plans. If you have one of these, you know what they are. If you don’t have one, you don’t need to worry unless you think you need one. Then you need to talk to me. I’ll help you get it set up.

There’s also an adjustment for penalties on early withdrawal of savings. Not a frequent item and it shows up on a form 1099-INT.

Finally there’s Alimony. Since the ex has to claim it as income, the payer can use it as an adjustment to income. But you can’t use child support or property settlement payments or other payments from the marriage dissolution. Just the alimony.

That is more than enough discussion on adjustments to income. Some of these are pretty evident to a preparer. Some of these you have to know to mention to your preparer so that they get included on your tax return. If you think you might have missed one in the last couple of years, get the returns out and take them to your preparer. Show the preparer what you think was missed and file an amended return. This applies just as much to deductions if you are itemizing. Amended returns don’t lead to audits. Just document the changes and keep copies of the documentation with the amended returns. And keep them in mind for the future.

DON’T MISS THIS NEXT PARAGRAPH! One of the things to take with you this year is the amount of your Tax Rate Reduction Credit that you got last summer. Your tax preparer needs to know the exact amount. The rate reduction is for 2001 taxes but the credit is based on your 2000 tax return. If you received less than the maximum, $600 for married filing jointly, $500 for head of household, $300 for single filers, You may be entitled to more credit than you received. You may have received more than you earned, but you don’t have to give the extra back. It’s a deal only the Federal Government would make.

Remember, no one should pay more than their fare share of the tax burden. And all these little things help to reduce your tax liability. As complex as the rules are, you need to see a professional to make sure you get everything done correctly. It’s not too late to correct the last couple of years, either. And if you are one of the few who are audited, never go it alone. The services of a professional can save you a lot of stress and grief.