Have you recovered from filing your 2004 tax return? If so, get busy preparing for next year.
And no, I'm not kidding.
"Everybody worries about filing their taxes at the end of the year, but in reality they need to be working on their 2005 tax return now to do what they can to minimize their taxes for the year," said David Bergstein, a CPA and business development manager for CCH Tax and Accounting, a provider of tax and accounting software and services.
I agree with Bergstein because, goodness knows, we need that long to figure out what to do and how to do it correctly.
In fact, if there were an exam on basic tax issues, from selling a home to investing and saving for retirement or a college education, most taxpayers would fail, according to a survey commissioned by CCH CompleteTax, an online arm of CCH Tax and Accounting.
What didn't people know? Here's what:
How many years must you live in your home in order to qualify for the capital gains exclusion on its sale?
Only 16 percent of those surveyed picked the correct answer, that you must have lived in your home two of the past five years in order to qualify for the capital gains exclusion of $250,000 ($500,000 if married filing jointly) when you sell your property. Taxpayers 55 and older were more likely than those under 55 to answer correctly. Only 24 percent in the older age group identified the correct answer, compared with 12 percent of those under 55.
Can you correctly identify education savings programs with tax benefits?
The vast majority of taxpayers with children ages 13 to 17 (77 percent) couldn't. By the way, the programs include the Hope Credit and the Lifetime Learning Credit, for people who have higher education expenses. There is also the Coverdell Education Savings Account and state-sponsored 529 plans, in which earnings grow tax-deferred and withdrawals are tax-free if used for approved education expenses. For more information, get IRS Publication 970, "Tax Benefits for Education."