Tales From The Tax Trenches
(MONEY Magazine) – The stories you are about to read are true. The taxpayers in the following anecdotes saved themselves money--and misery--by forming good relationships with their C.P.A.s and heeding their pros' advice. Read and learn from others' experience:
--When a client told Leo Bruette of BDO Seidman in Washington D.C. that he was expanding a pond on his Gettysburg, Pa. farm, he mentioned that the contractor was hauling tons of the excavated dirt to a nearby college for use in the school's relandscaping. Bingo! Bruette realized that the the dirt could be deducted as a charitable gift. The client paid a civil engineer $500 to appraise the dirt's value, and then took a $12,000 write-off, for a tidy tax savings of nearly $5,000.
--In 1996, a fierce nor'easter caused severe damage to the $1 million Greenwich, Conn. home of a client of Stuart Kessler of New York City's Goldstein Golub & Kessler. The homeowner called Kessler right away and, more important, acted on Kessler's advice to photograph the damage. When the client filed his return the following year, he took a casualty write-off for $80,000 in uninsured losses, cutting his taxes by more than $20,000. When the IRS audited, Kessler used the photos to help substantiate the claim.
--A Citicorp executive who had exercised incentive stock options knew that he would be forced to pay the alternative minimum tax. (The difference between the option price and the stock's fair market value on the date of exercise is an AMT trigger.) But he was shocked when David Walther of Mueller Prost Purk & Willbrand in St. Louis computed his tax bill: almost $86,000, which was $57,000 more than he would have owed if he hadn't exercised the options and been snared by the AMT. Walther's fix: He advised the exec to hold on to the stock acquired in the exercise for more than a year before selling. By so doing, a rule in the arcane AMT code allowed the exec to take a credit on his subsequent return for all of the AMT he paid earlier.
--A landlord gave Davis, Calif. tax pro Mark Castellucci a 1099 showing $11,715 of rental income that a business tenant had paid during the year. The amount was correct, but Castellucci noticed that the figure was entered in the box labeled Nonemployee Compensation rather than the one labeled Rents. So before filing the return, he made sure the landlord got a corrected 1099 and that the tenant filed a corrected form with the IRS. Undetected, the error might have caused the IRS to pester the landlord for a Schedule C showing self-employment income and, worse, payment of self-employment tax. "How much is it worth to you not to get a letter from the IRS?" asks Castellucci.