However taxes may shift in '85, first mind what you need do for the '84 change
While many people are thinking about the impact of possible tax law changes next year (as this column did last week), they are also concerned about what they have to do to comply with changes brought on by this year's legislation.Skip to next paragraph
Subscribe Today to the Monitor
One of the more sweeping sections of the 1984 law deals with deductions, particularly for personal property that is sometimes used in business, and for travel and entertainment. The key thing to remember is to keep records, meticulous, up-to-date records.
Before June 18, 1984, for instance, if you used a car 30 percent of the time for business and 70 percent for personal use, you were allowed to claim the 6 percent investment tax credit against 30 percent of the cost and deduct the rest of the 30 percent over three years, using the accelerated cost recovery system (ACRS).
The same benefit was available to home computers, but there was a 10 percent tax credit and the ACRS was spread over five years.
But after June 18 ('84), any personal property used part-time for business, including cars and personal computers, must be used at least half the time for business, or you won't be able to take any investment tax credit and you can't use ACRS. A car's business expense must be depreciated over five years and a computer's over 12 years.
In addition to depreciation, taxpayers like to claim deductions for business use of such personal items as cars and computers. But starting Jan. 1, you will have to keep very good records to get these deductions. If you claim decuctions that are not backed up with adequate proof, you are subject to an automatic 5 percent penalty for negligence. The record-keeping rules also apply to business travel, meals, lodging, entertainment, and gifts. Your records should show dates , places, guests, recipients, purpose of the trip or gift, and amounts spent. The records should also include any receipts you are given.
For a home computer, you should keep a log of when the machine is turned on. The log should show when the computer was used for business use, as well as non-business use, such as the kids' homework, or time spent on Donkey Kong.
If an accountant or other professional prepares your return, you will be asked to give that person a statement saying that you have these records.
There is some good news in new rules for individual retirement accounts. Before the 1984 law, a retirement plan distribution could not be rolled over tax-free into an IRA while you were still working. Now, you can move most or all of the funds in a retirement plan into an IRA before retirement. This is helpful to people who change jobs or retire early and want to manage their own retirement assets until they leave the work force.
It also means people who are not satisfied with the performance of their retirement plans can try to do better themselves, as long as they put the money in an IRA within 60 days of taking it out.