While you can get an extension for filing personal income tax returns, April 15 is the deadline for Traditional and Roth 2012 contributions. Even though many custodians will accept contributions postmarked April 15, don’t wait. Many institutions will allow a “journal entry” from a non-tax qualified, joint or individual account to an existing IRA. Banks often tout their “free” annuities but annuities make lousy options for IRAs. Be an informed consumer.



Tax planning is fine but don’t shoot yourself in the foot.  If you sell a stock or mutual fund, make sure your Schedule D accurately reflects your cost basis, otherwise you could over-report your income. Some things can trigger IRS scrutiny; remember the IRS has better computers than you do. Report all your 1099 income and W-2 income; they will spot any mismatches.



Rental property is a big deal in South Walton but only real estate professionals, defined by IRS rules, can write off rental real estate losses in their entirety. If your day job is not in the real estate business, “passive losses” prevent the deduction of rental real estate losses. An exception exists but is subject to a $100,000 to $150,000 AGI limit.



Last year the overall audit rate hovered around 1 percent but for income over $200,000, the audit rate shot up to over 3 percent and with $1 million AGI, 12 percent faced audits. Running cash businesses like a restaurant, hair salon or bar trigger audits also.  IRS agents practice interviewing proprietors of cash-intensive businesses to spot inconsistencies. Large cash deposits from any business increase the likelihood of an IRS audit.



A CPA colleague related they had never had a client who faced an audit for a home office deduction. Conversely, a local architect shared a story where an IRS agent hoofed it up three flights of stairs to verify his home office. A percentage of rent, mortgage, interest, insurance property taxes, utilities, and other costs can be deducted but the room must be used exclusively and solely for business, no TV at night or junior bunking  there for Spring Break. Next year’s 2013 return, you have the option of a $5 per square foot ($1,500 limit) deduction.



Just my luck, after buying an office in Redfish Village, the IRS makes things easier.  We’ve deducted my home office for 10 years and I can prove it’s legit.



Most people claim the standard deduction but larger than average itemized deductions per your income may red flag your return. Don’t claim unsubstantiated itemized deductions. If you donate valuable property, make sure you have an appraisal and any donation over $500 requires Form 8283 along with Form 1040. Conservation easements can trigger IRS audits, so much for the myth conservation easements are merely tax shelters. Note to E.O. Wilson Biophilia Center conspiracy buffs, good tax shelters avoid IRS attention. 



Response to Don Riley



CalPERS uses a 7.5 percent discount rate and WCTA does not want to use a more conservative discount rate like 7.5 percent because that would necessitate a higher local contribution likewise the firefighters’ union. My point is no one wants to use realistic returns when it comes to SWFD's pension and down the primrose path we tread.



Buz Livingston, CFP offers hourly financial planning and fee-only investment management to clients along Florida’s Emerald Coast.  Contact him at 267-1068, Buz@LivingstonFinancial.net or www.LivingstonFinancial.net