Random Observations from the Tax Desk

As you all know we prepare a lot of tax returns here.  Over the last couple months as we worked through all these tax returns I kept a running list of random observations.  I thought it might be helpful to share these observations with you and I’ve also tried to include some tips for how you can use them to your advantage.

Observation: Wouldn’t it be nice if Goodwill put a value on those receipts for the “bags” of used clothing you donated?

• Tip: When you donate noncash items take a second to write down an estimate of what you think those items are currently worth.

Observation: Life would be much easier if brokerage firms could link together all of your accounts and report all of your income on one 1099.

• Tip: Unless there are other planning reasons for doing so, try to consolidate your accounts as much as possible to avoid excess reporting.

Observation: I don’t like e-mailing to ask about that account with $15 of interest income last year as much as you don’t like having to respond to it.  I’m just trying to save you the hassle of a matching notice from the IRS.

• Tip: Read through the organizer we send you each year and make a note of any accounts that were closed or that had less than $10 of interest income for the year.

Observation: Why does the SPDR Gold Fund sell gold each month to pay the expenses of the fund?  You are taxed on the gain from these sales at a maximum rate of 28% because the fund holds gold, which is deemed a “collectible” by the IRS. 

• Tip: Consider other ways to invest in gold such as mutual funds that own gold mining companies – these shares are not taxed at the higher 28% collectibles rate.

Observation: Are publicly traded oil and gas partnerships worth the trouble?  They generate K-1’s that often have complicated AMT issues and domestic production activities income.  This adds time to your return preparation and sometimes causes you to file for an extension when the K-1’s are delivered late.

• Tip: There are many mutual funds and ETF’s that invest in oil and gas companies that would not generate K-1’s but would still give you exposure to the asset class.

Observation: I spend way too much time looking up addresses of charities while preparing tax returns.  I can’t imagine how much time would be wasted without Google!

• Tip: When your total noncash donations for the year total greater than $500, write in the organizer what was donated, when it was donated, and the address of the charity.

Observation: Why did it take so long for the IRS to mandate reporting of cost basis?

• Tip: Even though brokers will now be required to track your cost basis, they still might not have your basis in investments purchased in the past.  You should continue to keep track of your cost basis on your own and you might need to research cost basis in investments you’ve held for a long period of time when you sell them.

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