Avoid tax anxiety by starting early

Taking action now is best remedy, says local CPA

February 1, 2006

By DAN GOLDEN
ARGUS-COURIER STAFF

It's tax season. Did your blood pressure just go up? Don't worry, but don't wait, either, suggests Rick Torkelson, a local certified public accountant whose firm has been helping Petalumans with their taxes since 1982.

"Plan, don't wait," Torkelson said. "The best remedy for anxiety is action. The worst thing you can do is worry and let a week go by and worry again because nothing happened."

He should know. Torkelson & Associates helps about 200 corporations and 2,000 individuals with their taxes each year. He has a few other tips for helping tax season go more smoothly.

For instance, there are a few details that people sometimes forget when doing their taxes, such as DMV registration fees, vehicle mileage if used for business, or the amount they originally paid for recently sold stocks.

And one common tax misunderstanding, Torkelson said, is at what time capital gains taxes from the sale of a home need to be paid, which is not until April of the year following the transaction.

And then there's the alternative minimum tax, commonly known as AMT.

"AMT is an ugly thing," Torkelson said. "It wasn't set up to snag middle-class Americans, but it started to snag them slowly, and now it's going to snag them even harder."

AMT is an alternate tax computation against which all taxes are compared. Taxpayers pay the greater of the two computations. The more money one makes, the greater likelihood AMT is to be used.

"You have regular tax, where you have your gross income minus itemized deduction, and then your kids and then your taxable income, and you pay tax, and there it is," Torkelson said. "And then there's Alt Min, where they say, 'Here's the flat amount of your taxable income.' You add back dependents and you add back state tax."

Although state tax and real estate taxes are deductible on itemized deductions, with the AMT calculation, they aren't.

"You can't deduct state tax, that's the biggie," he said.

Because real estate taxes and incomes, and therefore state income taxes are, on average, greater in California than most other states, AMT is being used at a higher rate here than elsewhere.

"It used to be that the only people that got affected by Alt Min were the people that had really high state income tax deductions, real high real estate tax deductions or had incentive stock options," Torkelson said.

But that is increasingly changing due to a formula computed on IRS Form 6251, which tells taxpayers whether they need to pay AMT or not.

There are some important deductions new car buyers will want to remember when doing their taxes this year.

For those who bought a Prius or another hybrid vehicle in 2005, the IRS offers a $2,000 deduction. And ironically, business owners who purchased a big SUV can get a deduction, too.

Section 179 of the tax code enables business owners with SUVs or trucks over 6,000 pounds (like the BMW X5, the Cadillac Escalade ESV, Hummer H2, or the Ford Excursion) to deduct a large part of it.

Business owners can deduct $25,000 plus a $5,000 depreciation in the first year, and then depreciate the rest over the next four years. This deduction was modified a few years ago. Before, business owners could deduct the cost of entire SUV in the first year.

But the deduction may not be as good a benefit as it seems.

"It sounds better than it is." Torkelson said. "In a lot of cases that messes people up, really," because they often use a home equity credit line to purchase the vehicle. So even with the write-off, they still owe more money on their home.

No matter your deductions, the tax deadline comes at the same time every year. Or does it?

Even though everyone knows that tax time comes every April (April 17 this year), some people will still end up filing for an extension.

At least there's some good news in this department. This year, the filing deadline for those with extensions has been changed from August 15 to October 15.

So, it seems, procrastinators can procrastinate even longer this year. And stretch out that worry a little longer.

(Contact Dane Golden at dgolden@arguscourier.com)

TORKELSON & ASSOCIATES, CERTIFIED PUBLIC ACCOUNTANTS

Owners: Rick Torkelson, Lori Enochs-Torkelson

Founded: 1982

Sole proprietorship

Employees: 10 year-round, 12 during tax season

Address: 1301 Redwood Way, Suite 230

Phone: 795-2691

Web: www.tnacpas.com

PETALUMA BUSINESSPERSON PROFILE: RICK TORKELSON

Torkelson & Associates co-owner Rick Torkelson has lived in Petaluma since 1986. He has two young sons and two adult daughters, and is married to Lori Enochs-Torkelson, also a CPA and co-owner of the business. Torkelson likes Petaluma because it's a small town where people know each other and neighbors are friendly. He says that Petaluma is the way his hometown Santa Rosa was in the '60s and earlier. He enjoys eating out at Graziano's and Dempsey's (and did so even before they were clients). He's managed to avoid a full-on caffeine addiction, but he occasionally joins in the office's "Starbucks shuffle," where he'll order a dry cappuccino. Torkelson was also the Rookie of the Year as an outfielder in the over-48 Redwood Empire Baseball League.