prudant; Industrious, but consarvativa.
4. Try to hlro somoono who has
worhsd with tha I.R.S.; an Insidar’s
knowladga can ba invaluabla.
5. Discuss tha accountant's faa up
front, and maka sura tha rata covars
tha possibility of an I.R.S. audit. If
not, datarmina how much an audit
will cost you for your accountant’s
sarvicas.
0. Look for an accountant who thinks
ahaad. "Most young paopla*s salarias
changa drastically from yaar to yaar,"
Starn raports, "ft's Important to hava
somaona who antlclpatas changas in
your incoma and tax brackat, and
makas tha nacassary adjustments.”
M
"You want to find someone who is
forthcoming with ideas," Stern advises,
"someone who will come to you with new
ways to save money Make sure he’s up front
with you at all times If an accountant doesn't
level with you about a certain deduction or
strategy, it's a good bet it's illegal."
For those of you going it alone, without
the benefit of tax advice or preparation
assistance, you’ll want to be sure you're
paying as little tax as possible Keep a
careful notebook, detailing all expenses
relevant to your profession If it's necessary
for you to entertain business associates,
and your company does not reimburse you
for the costs incurred, those costs are
deductible.
You can also deduct home telephone
expenses in connection with business,
newspaper and magazine subscription fees
relative to your work, and medical expenses
that are not reimbursable through your in
surer. (Insurance costs, too, are often
deductible.)
If you work full or part-time out of your
home, you're able to deduct a portion of
your rent or maintenance costs as business
expenses Likewise, any home office
supplies-paper, filing cabinets, reference
materials, even a personal computer-are
legitimate business expenses and should
be deducted from your income at year end
To further trim the tax bite, many young
workers are now turning to IRAs (Individual
Retirement Accounts), which allow you to
invest up to $2000 of earned income each
year, and deduct that amount from your
taxable income The money, and all earnings
against it, accumulate on a tax-deferred
basis, you pay taxes only when you with
draw the money upon retirement (when,
presumably, you'll be in a lower tax bracket)
"If you're single, earning $20,000 a
year, you're probably in the 26 percent tax
bracket," counsels IDS’s Madden. "That
means, in order to keep one dollar, you
must earn $1 35."
To such an Individual, Madden ex
plains, a $1000 investment in an IRA is
worth $260 in tax savings. "With the tax
break, it's only costing you $740 to make a
$1000 investment," he says "I tell young
people in similar situations. 'If you don't set
up an IRA you're throwing away your money'
They're holding up to $260 and lighting a
match to it."
Individual Retirement Accounts, and
other tax-deferred investments, will be
explored further in next month's installment
of The American Express Real Life Planner,
when we look at investment opportunities
for the recent graduate
CASK IN POINT
When he was ottered his $26,500 train
ing position with a San Francisco bank, Alan
Calaban thought he'd be living on easy street
"I thought, Come on, this'll be something,’"
he recalls. "I thought I'd be making more
money than I'd ever hope to spend "
Calaban soon learned, however, that
his take home pay amounted to only about
$350 per week, and that wasn't nearly
enough to support the lifestyle he sought "I
went out and rented this great apartment for
$800 a month, which is a lot for San Francisco
housing," he says "I wasn't thinking about
saving anything, really but I certainly planned
on staying above water"
Despite his plans, Calaban soon found
himself drowning in expenses He took most
of his meals out and spoke often to his
girlfriend in Chicago; he bought a new
wardrobe and new furniture; he even made
plans for a week-long ski vacation with his
college friends in nearby Lake Tahoe
"My parents were telling me my money
was burning a hole in my pocket." Calaban
now says, "and it took me about four months
of being on my own to realize they were
right"
His first counteractive step was to take
in a roommate "My apartment was a one
bedroom, but it was a big one-bedroom." he
remembers. "We put up a big curtain
contraption to split the room in half " His new
roommate also agreed to contribute to
Calaban's new furniture costs, and donated
a full set of pots and pans to the then hardly
used kitchen.
"By February of my first year of work I
had cleared up all my debts and worked up
something of a budgeting system to use as
a guide," Calaban reports. Each week he
would put aside $100 for his share of the
apartment, another $100 for his share of
household food and utilities costs, and a
third $100 for what Calaban terms "mad
money expenses"—movies, drinks, clothes
and long-distance phone calls.
"One hundred dollars a week is an awful
lot for one person to spend on himself," he
reasons. "Vbu can 't go out every night, you'd
drop dead at work if you did that, but when
you do go out you've got to be careful about
what you spend."
Each week. Calaban earmarked at least
$50 for savings; when his social calendar
was light, he often banked twice that amount.
Now, after iust under a year of his dollar-wise
ways (and a 15% raise-to $30,000), Calaban
has saved almost $6,000
•'Vt>c/ have to be careful," he coaches
graduating students "Some starting salaries
lure you into the false impression that you
can do no financial wrong But you can go
wrong, far wrong, it you don't watch where
the money is going All it takes is some
planning and some restraint All it takes is
knowing what your limits are, where to draw
the boundaries of excess
"I treat myself nice," he says "I have
mce things-a nice apartment, a new stereo,
new skiis—l go out all the time To look at me
you wouldn't think I’m penny pinching my
way to financial health But I've learned to be
careful, and that puts mein a good position."