Until this year, the IRS allowed home-office deductions only if you actually saw clients or customers inside your house. That left workers who toiled on the road or in others' homes, such as plumbers or salesmen, out in the cold.
No more. The definition of home office has expanded to include the place where you do administrative work, too. That opens the way for an estimated 2 million taxpayers to write off a portion of their bills for mortgage interest, insurance, utilities and some commuting expenses.
One caveat: You could lose more in the long run by turning a piece of your home into a business expense than you'll gain from immediate writeoffs. Doing so could unleash capital gains and depreciation expenses if you later sell the place.
``If you're planning to sell your home in a couple of years, consider the wisdom of not taking full advantage of this deduction,'' said Mark Luscombe, chief tax analyst at CCH Inc., in Riverwoods, Ill. ``Whatever portion you claim as an office probably won't be eligible for the home-sale exclusion.''
2. Organize thyself.
Kathy Burlison thinks it may be a preparer's pipe dream, but she says one of the most important tax-planning steps people can take is to improve their record keeping.
``Just take a baby step this year,'' said the training specialist at H&R Block Inc. ``If you've have receipts and records scattered in piles all over the place, start with one file folder or - even better - buy a hanging file that separates things into categories.''
Most people should keep copies of their tax returns and anything that validates credits or deductions they've claimed for three years, Burlison said. If you're self-employed or have supplementary sources of income, consider hanging on to the supporting records for six years.
Depending on your situation, you might also need to keep tabs on records for investment buying and selling, home improvement, health care and utility costs, among others. If you own a small business, record keeping is especially important, Burlison said.
3. Pomp and circumstance, take two.
Planning for college expenses sits atop many folks' list of biggest financial worries, along with affording a comfortable retirement (see below). Congress created more than a few tax-advantaged ways to attack the problem.
One of the biggest is state-sponsored college-tuition plans, in which contributions grow tax-deferred until the money is used to pay for school. Then earnings are taxed in the student's, presumably lower, bracket.
Florida's prepaid plan, which allows enrollment from October through January each year, is the largest in the nation. But it also levies one of the harshest penalties for students who decide not to attend college: You get only your contributions returned, with no interest. There are also limits on money used for private and out-of-state schools.
Parents have plenty of options, though, since 11 other states allow non-residents to contribute to their plans. For more information, go to the College Savings Plans Network site on the Internet at http://www.collegesavings.org ``There are lots of options when it comes to tax planning and education,'' said Sandra Raiter, an analyst at Jackson Hewitt Tax Service. ``You have the education IRA now, EE Savings Bonds, qualified state plans and others. Just keep good records whatever you decide to do.''
4. The golden years.
Few dispute that they need to save - and save a lot - for retirement in the years ahead. The choice is how, especially now that the Roth IRA has appeared on the scene.
If the choice between opening a traditional IRA or a new Roth depends on whether you can deduct the contribution to the old-fashioned plan, remember that you're no longer prohibited from contributing just because your spouse is covered at work.
If you aren't covered by a plan yourself, the income phaseout range for your right to write off contributions to a regular IRA is $150,000 to $160,000. If you haven't already made a contribution for 1998, in fact, you have until April 15.
``Anything you can put away in any type of retirement plan helps,'' Cadden said. ``Tax benefits are just icing on the cake.''
5. You are not a bank.
More than seven out of 10 Americans pay the IRS too much year after year, figuring the juicy refunds they get each spring amount to forced savings. Finding your own source of self discipline might prove more profitable, experts say.
The money you loan Uncle Sam interest free could be earning nickels and dimes for you instead, through investments or even savings or interest-bearing checking accounts. Plus, many of the IRS tax breaks are non-refundable, rendering them useless for people who are receive a refund anyway.
And do you really want to take the chance that your big, fat refund check might get caught in the IRS's computers on Y2K day? The tax agency swears it won't happen, but there's no way to know for sure.
But that's not the only reason 1999 might be the year to change your withholding, Burlison said.
``Another IRS change this year is that you can have a tax bill up up to $1,000 and not owe any underpayment penalty,'' she said. ``You could be saving the extra money and paying it at the end of the year.''
Trim your taxes and boost your take-home pay by filing a new W-4 form with your employer. Your human resources department should be able to make the process easy for you.
For help setting the withholding at the right level, visit the IRS Web site (http://www.irs.ustreas.gov), click on ``tax info for you'' and then ``W-4 calculator.''
6. Getting your fair share.
Whatever you do, don't leave tax savings on the table. Spend enough time reading up on tax-law changes to make sure you don't miss any big opportunities for savings. Or hire an enrolled agent or CPA to pore over your financials while preparing the return. Or use tax-preparation software to fill in the blanks for you.
Just don't wait until late April 15 to hurry through the calculations. Even Albert Einstein knew that was a formula for tax-filing disaster.
