A column on personal finance prepared by the Virginia Society of Certified Public Accountants


(March 18, 2004) – Are you suffering from the post-April 15 blues? If your tax bill was too high, or you faced unnecessary penalties, the Virginia Society of CPAs has compiled a list to help you understand where you may have gone wrong in 2003 and what you can do differently in 2004.

Not Contributing to a Retirement Plan

Contributing all you can to an IRA, 401(k), Keogh, or other qualified retirement plan is one of the best ways to cut your tax bill and save for retirement. If you missed out on this opportunity in 2003, make amends in 2004.

Not Claiming All the Dependents You’re Entitled to

Generally, if you provide more than half the support of a parent or other qualified relative, you may be entitled to a dependency exemption. The gross income of a dependent (other than your child under age 19 or a full-time student under age 24) must be less than the personal exemption amount, ($3,100 for 2004) and the dependent must not file a joint return with his or her spouse.

Not Using the Right Filing Status

In certain situations, for example, when one spouse is in a lower tax bracket or has large itemized deductions, filing separately may lower your overall tax bill. The best way to be sure is to run the numbers both ways.

Donating Cash Instead of Property

You may be able to give a bit more and get a bigger tax break in 2004 if you donate appreciated property rather than cash to your favorite charities this year. When you donate appreciated property that you have held for more than one year, you not only qualify to deduct the property’s full appreciated value, but you avoid paying capital gains tax on the profit.

Not Taking Capital Losses to Offset Gains

Capital losses reduce your capital gains income and can be used to offset up to $3,000 in ordinary income. If you had significant gains in your investment portfolio, check to see if there are any losers you might consider selling. Keep in mind, however, that you should never make investment moves solely for tax purposes.

Not Claiming All the Deductions You Are Entitled to

If you routinely come up short when trying to itemize deductions on your return, try bunching the payments of deductible expenses into alternate years. This may enable you to itemize at least every other year. If you’re missing out on valuable deductions because of poor record keeping, strive to be better in 2004.

Not Making Quarterly Tax Payments

Taxpayers who are self-employed or have significant investment income typically need to make estimated tax payments. Estimated tax payments are used to pay tax on income that is not subject to withholding. The best way to avoid an underpayment penalty for 2004 is to choose to pay 100 percent of the tax shown on your 2003 tax return. If your 2003 adjusted gross income is more than $150,000 (or $75,000 for married, filing separate), you must pay 110 percent of your 2003 taxes.

Buying Mutual Funds Just Before the Distribution Date

Towards the end of the year, mutual funds typically distribute to existing shareholders all accumulated annual capital gains. This means that, even if you weren’t in the fund long enough to benefit from the profits generated throughout the year, you may have to pay tax on whatever capital gains are distributed to you. If you are making a significant investment in a mutual fund, check the fund’s distribution date and wait until it passes before writing your check.

Not Bunching Deductions

You may deduct only those medical expenses that exceed 7.5 percent of your adjusted gross income (AGI). For miscellaneous itemized deductions, the floor is 2 percent of AGI. If it looks like your medical expenses or miscellaneous deductions for 2004 will be at or near the required floor, accelerate any elective expenses into this year. Alternatively, if don’t expect to exceed the minimum floor, defer expenses until next year.

Not Meeting With a CPA Early in the Year

A CPA can be a valuable resource in planning strategies to lower your tax bill. The earlier in the year you meet, the more time you will have to put in place an effective year-round tax saving plan.

The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at

Lifetime Financial Planning, Inc.

Dean Knepper, CPA, CERTIFIED FINANCIAL PLANNER™ professional

2325 Dulles Corner Boulevard, Suite 500, Herndon, Virginia, 20171

208 South King Street, Suite 201, Leesburg, Virginia, 20175

Phone: (703) 779-0515 - Fax: (703) 779-7815 - E-mail:

Hourly Fee Only | Financial Planning | Investment Advice | College Savings Plans | College Financial Aid |
Tax Planning & Prep | Planner Profile | Media - LFP in the News | Financial Advice Column |
Links to Financial Info | Meeting Questionnaire | Driving Directions | Contact Us | Home |

©2001-2003 Lifetime Financial Planning, LLC, ©2004 Lifetime Financial Planning, Inc. All Rights Reserved