Last Minute Tax Tips

April 15th Tax Deadline Approaches; Are You Prepared?

April is here and the final rush is upon us.  The following are some last minute tax tips to keep in mind for the end of this tax season and to prepare you for next tax season (tax year 2019).  If you are still in need of professional tax help, please do not hesitate to call us toll free at (888) APRIL-15 or click the green bar to schedule an appointment.  But hurry; the April 15th deadline is quickly approaching:

Know Your Withholding:  One of the features of the new tax laws was a change in withholding tables resulting in reduced tax withholding for many W2 employees. While reduced withholding increases your weekly paycheck, it also reduces–or in some cases entirely eliminates–your expected refund.  Please check with your employer’s accounts department to verify your withholding and make any preferred adjustments.

Extension Filings Are Up:  We’ve seen a number of our clients taking a “wait-and-see” approach to these new tax law changes.  As such, we’ve seen a large increase in the amount of extensions filed this year. If you haven’t filed yet & owe money to the government, you might want to consider filing an extension. Remember: An extension is only an extension to file your final tax return; it is not an extension to pay the taxes you owe.  An estimate of taxes due is sent along with your extension by the deadline.

IRS Filings Are Down:  The number of returns submitted to the IRS is down about 2% compared to last year.  2018 was the busiest April R&G Brenner has ever had. We expect an even busier final 2 weeks this year.

Tax Filing Deadline:  To make matters worse, the past couple of years we’ve had a couple of extra days to file. Not this year: the final day to file is April 15th.  Tax returns must be electronically filed or postmarked by 11:59 pm on 4/15 or you will be subjected to penalties and interest.  Remember: This deadline is only if you owe.  If you are due a refund you have 3 more years to claim your 2018 refund.

5 Quick Tips for First-Time Tax Filers

Tips For First Time Filers
Tips For First Time Filers

Taxes may be one of the only certain things in life, but that doesn’t mean that filing them is easy. This is especially true if you are a young adult filing your first tax return. If you are single and earned an income greater than $10,000 in 2014, you are required to file a federal return. If it’s your first time filing taxes, you might be a little overwhelmed, but never fear. Here are 5 quick tips to help you file your taxes for the first time.

Create a Folder to Collect Your Tax Documentation

Every employer you worked for in 2014 should have sent you a W-2 wage statement, postmarked no later than January 31, 2015. This includes part-time, full-time, and temporary jobs, no matter how few hours you worked for the company. If you didn’t receive a W-2 by early February, contact your employer to make sure it wasn’t sent to the wrong address. For any work you completed as an independent contractor, you should have received a 1099 miscellaneous income statement. Make a habit of collecting all your pay stubs, earnings statements and other financial paperwork in one folder so that you’ll have everything you need come tax time.

Special Rules for Dependent College Students

Things can get slightly complicated when you earn enough money to file a return while still receiving more than half of your financial support from your parents. If they plan to claim you as a dependent, IRS rules don’t allow you to claim a personal exemption on your own tax return. In most cases, it makes financial sense for your parents to take the tax exemption, since they likely owe more in taxes than you do. However, you or they can speak to a tax accountant if you’re uncertain.

Make it Easier on Yourself; File Electronically With Direct Deposit

The IRS & most states currently require that you file your tax return electronically.  However, many tax filers still elect to receive their refunds by being sent a check as opposed to depositing it directly into their bank account.  Choosing a direct deposit shaves weeks off the time it takes to receive your refund.  In order to file electronically, you will need to use tax software or hire a tax professional.  The benefit of using software/tax professionals is that they find math errors and deductions you may have missed. Common deductions that new taxpayers overlook include charitable donations, job search expenses, and state and local sales tax paid. If you have children yourself or you’re filing as head of household, you qualify for even more tax credits.

Choose the Simplest Form Possible

If you are single, don’t own a home, have no dependents, and earn less than $100,000 a year, filing your return on the 1040EZ form makes your life a whole lot easier. If you choose to use tax software, the program should suggest this after completing its initial interview with you. You’re more likely to find free tax preparation programs when you file using the 1040EZ form.

Get Your Taxes Done on Time

Your federal and state tax forms for 2014 must be postmarked by Wednesday, April 15, 2015 to avoid paying a late penalty. If you have legitimate reasons for not getting your returns in by that date, you may be able to request an extension. It’s also important not to be in such a hurry to get this chore done that you speed through it and make costly mistakes. This is a common mistake for first-time filers, especially those who are expecting a refund.

If it’s your first time filing taxes, take your time, plan ahead, and consider using tax software to make your life easier. Remember: it’s always a good idea to ask a tax professional if you’re not sure about something. Good luck!

April 15 Countdown & Last Minute Tax Tips

Tick Tock, TickTock...April 15th Deadline
Tick Tock, TickTock…April 15th Deadline

With the clock about to strike midnight on the 2013 Tax Year Filing season, the following is a quick list of tax tips for all you last minute filers out there:

April 15th Deadline

Yes, we all know the saying “Death & Taxes…”. And nothing drums up the cold sweats and association with taxes like the April 15th deadline. However, here is something that many taxpayers do not know: This deadline is only if you OWE taxes to the IRS.  If you are due a refund from the IRS, you actually have 3 full years from the April 15th deadline to claim and receive your refund before it becomes the property of the U.S. Government.  So, as long as you file your 2013 tax return by April 15th, 2017 you will get your refund.  There are of course, many reasons to file your 2013 tax return before the deadline.  It’s your money!  So don’t let the government hold on to it especially when they do not have to pay interest on it.  If you owe, and you do not have all of your tax documents ready, you can always file an extension.  Extensions must also be filed before the April 15th deadline.  REMEMBER: An extension is only an extension to file your final tax return, NOT to pay the taxes you owe.  Therefore, expect to send payment for the estimated amount of taxes you owe along with any extension.

Beware of IRS Scams

IRS & Tax related Scams have been steadily increasing over the last few years.  The most common scam going around is IRS impersonators contacting unsuspecting taxpayers and getting them to divulge their confidential personal information which can be used to open up credit cards in the victims name and/or to a file a fraudulent tax return in their name in order to steal refunds.  NOTE: The IRS will NEVER initiate contact with your via email, phone, fax or text.  They will always send you a written notification with instructions.  Even if you receive written communication, double check that the contact information on the letter matches the IRS contact information from the IRS website.  If you think that you are the target of a tax related scam, report it to

Sign Your Return & Mail To Correct Address

While this may sound trivial, many taxpayers forget to sign their tax returns!  Your tax return is technically not considered filed if it is not signed.  While the majority of tax returns are filed electronically, there are still many reasons why a return would be filed as paper.  Furthermore, if you had your return prepared by a professional, be sure that they signed the return as well.  While the taxpayer is ultimately responsible for what is listed on their return, a common scam that many “professionals” use to avoid any liability is to file a tax return as “self-prepared”.  In other words, the IRS thinks that the taxpayer prepared and filed the tax return themselves when in reality it was filed by a paid income tax preparer.  So be sure to check for all appropriate signatures!  Furthermore, be sure you are mailing your tax return to the right IRS processing center.  The IRS tends to change their mailing addresses annually and some  have separate mailing addresses for refunds and taxes due.  Here is a list of all the IRS tax processing centers.

Keep Your Tax Records

So you just sent in your taxes and now you can throw all of your W2s, 1099s, receipts & other tax related documentation into the fireplace, right?  WRONG! Depending on your situation, the IRS says to keep all of your tax records between 3 & 6 years.  So, just to be on the safe side, keep all of your tax records for at least 6 years.  Sometimes it could take years before the IRS notifies you with an issue and/or adjustment on your tax return.  If you plan on contesting changes in the IRS’ favor, you’ll need your backup documentation.  Recent budget cuts to the IRS will probably delay the notification process even more.

File With A Tax Professional

While millions of taxpayers are electing to forego using a tax professional in favor of filing themselves, the numbers don’t add up.  A couple of years ago R&G Brenner investigated The True Cost Of Preparing Your Own Tax Return and found that taxpayers who filed themselves were losing an average of $594 in refunds as opposed to using a Tax Professional.  Similarly, H&R Block is running ads this year that found 1 in 5 taxpayers who prepares their own taxes are not claiming all the deductions they are entitled to and are losing $490 in refunds.  Now there are many taxpayers who have very simple returns (standard deductions, no house, no kids, etc) and can easily file themselves.  However, the moment your tax return gets even a little bit complicated, you should seek professional help.  If you are going to Itemize Deductions (Schedule A), claim mortgage interest, have children (Earned Income Tax Credit), deduct business expenses (Schedule C), have rental income (Schedule E), or other complex tax positions, it is almost never a good idea to prepare your own tax return.

If you would like information about R&G Brenner, our services or if you need any tax assistance before or after the April 15th deadline, please feel free to contact us here, or call us toll free at (888) APRIL-15.

Holiday Season Tax Breaks

Last Minute Tax Breaks
Last Minute Tax Breaks

The notion of taxes can be stressful for anyone, and so can the holiday season. While reading about taxes and finances could destroy the holiday spirit for some, it is a great idea to be cognizant of the various holiday tax deductions to make the season much less stressful. Below is an overview of some common last minuet tax deductions and tax break opportunities that you can take advantage of this holiday season before you close the books on 2013

Tax Deductions for Business Gifts 

In many circumstances, it can be quite beneficial for a business to give holiday gifts to their clients, but this can often be a costly endeavor. Fortunately, you may deduct the cost of business gifts that are up to $25 per client, associate, or employee on your income tax return. However, it is important to note that “incidental expenses” (such as wrapping paper, holiday gift cards, insurance, and mailing) are not included in this $25 limit. It is also important to keep in mind that you may not double this limit by including a spouse or business partner when giving to the same recipient. 

There are Exceptions to Gift Tax

In a non-business circumstance, just about anything that you give as a gift to another person could be subject to gift tax on the giver’s end. However, it is important to know the exceptions to this. First, know that there is absolutely no gift tax when giving to a spouse, so you may be as extravagantly generous as you want. Also, keep in mind that choosing to pay someone’s tuition and medical expenses this holiday season not only provides a great gift, but also leaves you with no gift tax. Do make sure that if you choose to do this, you pay your money directly to the educational or medical institution (rather than to the recipient). 

Tax Benefits for Donating to Charities and Organizations 

Sometimes, the best holiday gift is giving money to a charity or organization that you care about. As far as legitimate charities go, you can send as much as you want. There is not only no gift tax, but it is tax deductible. On the other hand, it is very important to note that although there will not be gift tax when you donate to a political organization, this endeavor will not be tax deductible. 

Consider Donating Your Family’s Unwanted Holiday Gifts for Tax Breaks

It may seem cold, but it is the truth that we often end up receiving holiday gifts that we do not want. Instead of exchanging them for new items, you could donate them to charity; you will not only be helping those less fortunate than you, but you will also be able to claim additional tax breaks this holiday season. The IRS has a form that helps you to assess the value of what you end up donating, so that you may claim the corresponding tax deductions. Make sure that you obtain a receipt from the charity that you are donating to for your records. 

A Happy & Healthy New Year form everyone here at R&G Brenner Income Tax!

How To Prevent The IRS From Delaying Your Refund

Many taxpayers believe that their tax refunds are “found” money.  But a tax refund is simply an over-collection of taxes by your employer.  Watch this video to find out how to adjust your tax withholding to reduce the amount of money withheld so the IRS has less or no money to refund you in future tax seasons, and increase your weekly paychecks.

The downside for some taxpayers is that they enjoy getting a nice refund.  In many ways, they treat the IRS like a bank.  However, when you consider you can do the same with a little diligence and actually take the extra money from your weekly checks and deposit them into a real bank (that actually pays interest no less), and that the IRS is auditing and delaying more refunds, this should be an attractive alternative for many taxpayers.

If you need assistance or more information, please contact an R&G Brenner profession here, or call us toll free at (888) APRIL-15

Automatic Tips To Be Treated As Taxable Wages

"Gratuity Included" Going Extinct?
“Gratuity Included” Going Extinct?

We’ve all been out to a restaurant and received a bill where gratuity–usually around 18%–was included in the bill.  This routinely occurs when larger groups dine together.  However, this practice may be going extinct as a change in the tax rules starting January 1st, 2014 will view automatic gratuities as a “service charge”, which opens them up to be taxed as wages.

Any way you look at it, this is not good news for employers, and especially employees that depend on tips for their lively hood.  Employers would be subject to more paperwork and more responsibility to accurately report their employee’s wages to taxing authorities; potentially opening them up to payroll audits if they continue the practice of automatic gratuities, but are not vigilant reporting these “tips” as wages.  Or they simply can eliminate  automatic tips all together, and have all dining parties (regardless of size) tip their servers the traditional way.  The later appears to be the choice that many large restaurant chains are making:

 [Olive Garden, LongHorn Steakhouse and Red Lobsters] stopped automatic tips at 100 restaurants in four cities, where it is testing a new system in which the restaurants include three suggested tip amounts, calculating for the customer the total with a 15%, 18% or 20% tip on all bills, regardless of party size. Diners can opt to tip more or less than the suggested amounts, or to not tip. Depending on how patrons react and how well the new software system works, Darden [Restaurant Inc. which owns all three restaurant chains] may switch to such suggested tips at all of its restaurants…”I think the vast majority of restaurant owners will discontinue the practice,” says Denise Wheeler, an employment attorney in Fort Myers, Fla., who represents several restaurant chains.

It’s a ‘Damned if you do, Damned if you don’t’ scenario for servers.  On the one hand, if their employer decides to keep automatic gratuities, their tips become wages and subject to withholding thereby guaranteeing they do not see their full 18% tip.  On the other hand, eliminate automatic gratuities and patrons might not tip as much as they would had the tip been included…not to mention the potential for arguments over tips between servers and patrons also increases:

Restaurants adopted automatic gratuities to help ensure that their servers—whose tips supplement a salary that is often less than the federal minimum wage of $7.25 an hour—weren’t stiffed on large tabs. But many servers are likely to support dropping the practice because they don’t like the idea of their tips being treated as wages, which requires upfront withholding of federal taxes, and means they won’t see that tip money until payday.

“I don’t want my tips to be on my paycheck as a wage. I like to get my tips at the end of my shift because I know what I’m getting right away,” says Tamie Cordoba, a 54-year-old server at a LongHorn Steakhouse in Jacksonville, Fla.

Ms. Cordoba makes base wages of $4.25 an hour, or $144.50 to $161.50 for her average workweek of 34 to 38 hours. She said she usually makes an additional $500 to $650 a week in tips. Since she never knows exactly how much she will get each week in tips, getting paid at the end of each shift helps her budget, Ms. Cordoba said. “In this industry, that’s what we live on. If I had to wait two weeks I don’t know how I’d survive.

This is another head scratcher from the IRS.  While this rule was proposed for 2013, the implementation of the rule was delayed to 2014.  The IRS issued a statement that “additional clarification” is recommended concerning this rule.  Right now the only thing clear is that hard working lower income taxpayers will again pay the price in the form of lower net income.

We are approaching the 5 year anniversary of the global financial crisis, and the ensuing taxpayer bail-out of the banks that nearly brought down the entire global financial system. This tax rule stands in stark contrast to the countless loopholes that  millionaire and billionaire financial executives have access to; the very same executives that caused of contributed to the crisis with their reckless investing and ‘aggressive’ accounting practices.  Which again raises this question:  Why hasn’t the justice department punished even one of these culprits?

We’d like to hear your comments.  What are your thoughts on this tax rule change?

Source: Wall Street Journal

Tax Tips If You Are Accused of Tax Fraud


Tips If You Are Accused Of Tax Fraud
Tips If You Are Accused Of Tax Fraud

Stephen J. Dunn a contributor for Forbes magazine offers some key tips for taxpayers who are accused of filing fraudulent tax returns. Interestingly, according to Dunn, the best evidence the IRS obtains in support of a fraud case comes from the taxpayer themselves, disgruntled employees and even family members.  

In the case of the taxpayer implicating him/herself, the IRS usually sends field agents to visit the taxpayer.  It is at that meeting the IRS will ask pressing and pointed questions concerning the alleged fraud.  The taxpayer is NOT required to answer any of their questions at this initial meeting, nor should they unless in the presence of appropriate counsel.  Furthermore, many former employees who perceive they were slighted are all too happy to provide the IRS with evidence of their employer’s fraud.  Estranged spouses going through a divorce may also use the threat of reporting their counterpart to the IRS in the hopes of extracting a more favorable settlement.

When one considers legal fees, repayment of back taxes, penalties, the prospect of jail time–and not to mention the copious amount of personal time expended–the risk simply is not worth the reward as the capital expended defending oneself will almost always exceed the capital that was not reported. The following is a list of Dunn’s tips:

Retain competent counsel.  I am talking about an attorney experienced in representing taxpayers in criminal tax cases.  Not a criminal generalist attorney, or a tax generalist.  For God sakes not an accountant.  Accountants are profoundly ill-equipped to represent taxpayers in criminal tax investigations.  Moreover, there is no accountant-client privilege in Federal court.  When the IRS investigates a criminal tax case, one of the first things it does is subpoena the taxpayer’s accountant and compel him to tell everything he knows about the case, and produce his documents concerning the taxpayer.  Concerned about complicity in the alleged tax fraud, the accountant may be anxious to talk with Federal prosecutors, in return for immunity.

Don’t talk with Federal agents, or with anyone who mysteriously appears at the taxpayer’s business.  Tax crimes are specific intent offenses—the IRS must prove beyond a reasonable doubt that the taxpayer knew that his tax return materially understated his tax.   One of the best ways for the government to prove  is by the taxpayer’s own admissions.  IRS agents make detailed notes of an interview of a taxpayer, and often embellish the taxpayer’s statements, or misquote the taxpayer.  The taxpayer is better off leaving communication with Federal agents to his counsel.

Don’t panic.  The IRS has a heavy burden.  The more complicated the facts and the law, the tougher it is to prove that the tax returns materially understated tax, or that the taxpayer knew it. This too shall pass.

Consider  a voluntary disclosure.  If the facts clearly establish a material underreporting of tax, the taxpayer should consider making a voluntary disclosure.  This decision should not be delayed, as the IRS will accept a voluntary disclosure only as long as the IRS has not opened an investigation of the tax returns.  The IRS no longer recognizes “quiet” voluntary disclosures.  Taxpayer’s counsel makes an initial inquiry of IRS CID as to whether there is a tax fraud investigation afoot at to the taxpayer.  If the answer is negative, then taxpayer’s counsel may submit a voluntary disclosure for the taxpayer, under guidelines prescribed by IRS.  IRS CID will then send taxpayer’s counsel a letter stating that if the taxpayer does what the IRS requires, including filing appropriate amended tax returns and paying the tax due thereon, the taxpayer will not be prosecuted.  The IRS will conduct a civil audit of the amended tax returns.

Don’t ignore the problem, but rationally analyze options with counsel.

To read Dunn’s complete article, click here.

Last Minute Tax Tips

Last Minute Tax Tips
Tick-Tock, The Deadline Approaches

As the April 15th Deadline rapidly approaches, there are still hundreds of thousands of taxpayers expected to file the final week of the tax season.  The late start to the tax season and the fact that we are getting reports from clients that they still have not received all their tax documentation in order to file is making  this last minute crunch even more magnified.  Here are some last minuted tax-tips (even if you’ve filed already)

1) IRS E-mails: If you’ve received an email from the IRS relating to your refund or requesting taxpayer information, DON’T REPLY!  This is a common scam that thieves use to steal your identity.  Don’t even open the email if you can avoid doing so as some of these emails contain viruses or malware.  The IRS never initiates contact via E-mail.  If the IRS needs information from a taxpayer, they will send a formal notification via USPS mail on official letter head.  If you receive any suspicious communications you believe are scams via email, forward them to

2) April 15th Deadline: Many taxpayers don’t realize that the deadline for filing a tax return only applies to those that owe money to the government.  If you are due a refund the IRS allows you 4 years to file.  It is always best to file and receive your refund the year you are due it, as the IRS does not pay interest.  So, if you believe you are due a refund and you haven’t filed, have no fear, you’ve got plenty of time.  No need to wait on line to file before the deadline.  R&G Brenner has offices open after the tax season and throughout the year.  Even if you file a day after the deadline, you should have no wait time to see a professional.

3) Filing Extensions:  As stated above, if you are due a refund, you have 4 years to file your tax return and there is no need to file an extension.  However, if you believe you will owe the IRS/State(s) and have not received all of your tax documents or you are simply not ready to file, you should consider filing an extension.  Nevertheless, an extension for filing your tax return does not automatically grant you an extension to pay your taxes; the IRS still expects to be paid before the deadline.  If you cannot pay all that is due, simply send what you can.  The IRS will charge you interest on the balance due and you can set up a payment plan if you wish.  If you do not pay, not only with the IRS charge interest but also a late filing penalty.  The more money you owe, the steeper the penalty will be.  So, file on time, or file an extension.

4) File Yourself or Use A Tax Pro?:  The tax code is very complicated and littered with special credits & deductions.  Unless you are filing a very simple return, it is almost never a good idea to file your own taxes.  Simply put, even in this day and age, a computer questionnaire is not an adequate replacement for a professional.  Check out the True Cost of Doing Your Own Taxes.  On average, refunds using a Tax-Pro are $347-$841 HIGHER than Do-It-Yourself programs.  The time you save is just as valuable–if not more so–that the money you’d spend on a professional.

If you need help with any of the above, contact an R&G Brenner Tax Professional today, or call us toll free at (888) APRIL-15.

Lessons Learned From Mitt Romney’s Tax Return

Republican candidate Mitt Romney recently bowed to pressure last week and released his 2010 tax return.  What it showed is that Romney paid a little less than $3 million in taxes on $21.6 million of income.  This equates to an affective tax rate of less than 14%–far below what the average taxpayer pays.

The Wall Street Journal printed an interesting piece which offers a “rare glimpse into how the ultra-wealthy can use the tax code to their benefit and [other] important lessons…” While the average taxpayer may not benefit from these tax positions, it is nonetheless interesting and important to be aware of.  The following list is what the experts have discovered from combing through Romney’s return:

A. Avoid salary, wages and tips to the extent possible. The Romneys reported no such compensation, which is taxable at rates up to 35%. In addition, these types of pay are subject to payroll taxes: a 6.2% Social Security tax (lowered to 4.2% in 2011) and 1.45% in Medicare tax, both of which the employer matches. While the Social Security tax is capped each year at a certain income level ($110,100 for 2012), the Medicare tax isn’t.

Some experts believe “carried interest,” or profits such as those from investments that Mr. Romney received as a partner at Bain Capital, should be taxed as compensation at rates up to 35%. Currently, those profits usually count as capital gains and are taxed at a top rate of 15%.

B. Muni-bond interest isn’t the be-all and end-all. Many wealthy people turn to municipal bonds for tax-free income, but the Romneys reported only $557 of tax-free interest in 2010—and $3.3 million of taxable interest.

Kenneth Brier, an attorney at Brier & Geurden in Needham, Mass., notes that Massachusetts has a flat tax of 5.3%, making munis less attractive there than in high-tax states with graduated rates such as New York or California. And because the Romneys’ overall tax rate is so low, the after-tax difference between munis and taxable bonds might not be large enough to justify investing in munis, Mr. Ochsenschlager says.

Some of the taxable interest on the Romney’s 2010 return came from U.S. Treasurys; such interest isn’t subject to state taxes.

C. Strive for “qualified” dividends. The Romneys’ 2010 return reports $3.3 million of qualified dividends, which are taxed at a top rate of 15%. (There is another $1.6 million of nonqualified dividends, taxed like interest income.)

What makes a dividend “qualified”? In general, the dividend must be from a stock held at least two months and paid by any domestic corporation or most foreign corporations. The dividend can’t come from a stock that a brokerage firm has lent as part of a short sale, says Robert Willens, an independent tax expert in New York.

D. If you have a “Schedule C” business, think twice before claiming a home-office deduction. The Romneys didn’t take one on either of two Schedule C forms, which are for business results reported on personal returns. The Romneys used their Schedule C forms for director’s fees and speaking fees.

Not only do home-office deductions raise red flags at the IRS, but they can come back to haunt taxpayers when the home is sold: Part of the gain on the home’s sale may not be eligible for the $250,000 or $500,000 tax exclusion because taxpayers who took depreciation deductions in prior years have to reduce the exclusion by that amount.

In addition to raising taxes in many cases, this poses a record-keeping problem, Mr. Ochsenschlager says.

E. Generate income from long-term capital gains. The biggest factor in the Romneys’ super-low tax rate is their outsize income from capital gains: $12.6 million in 2010. Most of that consisted of long-term gains, which, like qualified dividends, are taxed at a top rate of 15%.

The benefits don’t end there. While the tax code gives wage earners almost no flexibility as to timing, the capital-gains rules offer unparalleled flexibility. Investors can often time when they take a gain or loss, and losses may be used to offset gains so that no tax is due. There are few restrictions: For example, a loss on land held as an investment can offset the gain from a stock.

Net capital losses can shelter up to $3,000 a year of ordinary income from tax, and losses can be carried forward indefinitely to shelter future gains. Canny investors or their advisers often “harvest” losses during market downturns, reacquire the investment after 30 days and use those losses to offset future gains, Mr. Willens says.

On Schedule D of their 2010 return, the Romneys’ original long-term capital gain of $16.8 million was reduced by $4.8 million of carried-over long-term capital losses.

F. Know the score on itemized deductions. One way the Romneys resemble many other taxpayers is that they didn’t get a medical-expenses deduction. Only expenses above 7.5% of adjusted gross income are deductible; for the Romneys, that hurdle amounted to $1.6 million, while they reported medical expenses of just $14,176.

The Romneys did make tax-wise charitable contributions. They gave away nearly $3 million, almost 14% of their adjusted gross income, about half in cash and half in other forms.

All of their contributions were fully deductible, whereas the biggest givers are subject to limits. Billionaire Warren Buffett, for example, gives away such vast sums each year that much of it can’t be deducted from his income tax (though the gifts will be out of his estate).

Making noncash gifts—such as appreciated stock or other assets—often is a smart move for people like the Romneys because they can skip paying capital-gains tax on any appreciation, while getting a full deduction.

For example, say a higher-bracket taxpayer has 100 shares of stock bought years ago for $30 a share that is worth $80 when he donates it. If he sold the stock, paid tax and gave the remaining cash to charity, it would receive $7,250 and he would have a deduction of the same amount. If he gives the stock directly to the charity, it would receive $8,000, and he could deduct the full $8,000. (Some restrictions apply.)

G. Capital gains and dividends can help trigger the AMT. Long-term capital gains and qualified dividends are taxed at 15% and aren’t subject to the alternative minimum tax.

The AMT takes away the value of deductions, such as the one for state taxes, when taxpayers are deemed to have too many write-offs. But a large percentage of capital gains and dividends in a taxpayer’s overall income mix can cause a taxpayer to owe AMT.

The reason: With capital gains and dividends off limits, deductions loom large relative to other income, and that triggers AMT. The Romneys paid $232,989 in AMT in 2010 and lost the value of their state tax and other deductions, according to Jay Starkman, a CPA in Atlanta. “Without that, their tax rate would have been even lower,” he says.

H. Beware of small benefits requiring large tax-prep efforts. The oddest line on the Romneys’ 2010 return is a tax credit for $1 of “General Business Credit.” Don Williamson of American University’s Kogod Tax Center says the credit could be for hiring a disadvantaged youth or qualified veteran and it flowed through from an investment partnership.

But likely it cost far more than $1 just to fill out the three-page Form 8300 for the return. Mr. Williamson says he sees this problem all the time. Often tax-prep fees are disproportionate to an investment’s tax benefit or the income it produces, he says—especially with larger investment partnerships.

One other lesson: For the wealthy, offshore investments can save onshore taxes. Robert Gordon, head of Twenty-First Securities in New York, a firm specializing in tax strategies, points out that the Romneys’ 2010 return has 17 different filings of IRS Form 8621. Each indicates an investment, perhaps a hedge or private-equity fund, held in an offshore corporation.

These are legal arrangements, Mr. Gordon stresses. They can have significant tax advantages for the wealthy who live in high-tax states—especially Massachusetts, because its flat tax allows no deductions.

Investments held offshore in what is known as a “blocker corporation” can allow U.S. taxpayers to pay less tax than if the same investment were made through an onshore entity, Mr. Gordon says.

He offers an example. Say a partnership based in the U.S. invests $100, $80 of which is borrowed. It earns $5 of profits and has $4 in interest expense, for $1 of net pretax profit. In Massachusetts there isn’t an interest deduction, so the entire $5 would be taxable.

If the investment were held in a fund based in the Cayman Islands, however, only $1 would be taxable in Massachusetts. Federal deductions subject to limits would also be preserved, Mr. Gordon says.

Source: The Wall Street Journal