What a taxing situation
By Herb Drill
We leave Angelina Jolie and Brad Pitt baby-awaiting to consider a serious matter: When is it time to think about preparing your federal income-tax return? No, it isn’t Jan. 1! It’s today, whichever today is when you read this. At times when lobbyists seem to rule the arrogant halls of
Washington
, it’s safe to assume when it comes to taxes the enemy would still be us. Still, there remain “a few good men” and women who do their duty and pay taxes. To help, the
IRS
has loads of advice.
If you utilize a tax preparation service,
IRS
reminds us to find someone professional; ultimately, you’re responsible for the return. Avoid those who claim they can obtain larger refunds than other preparers. Choose a preparer you will be able to contact after the return is filed and will be responsive. Remember, only attorneys, CPAs, and enrolled agents can represent you before the
IRS
in audits, collection actions, and appeals.
The No. 1
IRS
tip is: “Get a head start; early filers get refunds sooner.” Plus, e-filing catches math problems, provides confirmation your return was received, and gives you a faster refund. Make sure you have records you need. Get the right forms, available 24/7/365 at www.
IRS
.gov. Double-check your math and verify Social Security numbers. Have a question? Try www.
IRS
.gov, or call
1-800-829-1040
.
IRS
says “if your child has a physical, mental, or emotional impairment, it’s likely families have one or more unclaimed tax benefits. Tax decisions shouldn’t be made simply [with this] information.”
IRS
issues Revenue Rulings - formal, binding policy statements which tax professionals rely on in advising clients about tax liabilities and benefits.
As for deductions, whether to itemize depends on how much you spent on medical care, mortgage interest, taxes, charitable contributions, casualty losses, and miscellaneous deductions. If these totals are more than the standard deduction, you benefit by itemizing. Standard deductions are based on filing status and are subject to inflation adjustments yearlt. For 2005, they are: Single, $5,000; Married Filing Jointly, $10,000; Head of Household, $7,300, and Married Filing Separately, $5,000. It’s more for taxpayers 65 or older, or the blind. If itemizing manually is hard, buy software like TurboTax (about $30), which walks you through the process. Or, hire a CPA.
If you file Form 1040 and itemize on Schedule A, there are four types of deductible non-business taxes: State, local, and local income taxes, real estate taxes, personal property taxes, and foreign income taxes. You can claim a state and local tax deduction for income or sales taxes, or any estimated taxes paid to state or local governments and any prior year's state or local income tax if they were paid during the tax year. If deducting sales taxes instead, you may deduct actual expenses or use
IRS
tables to determine your deduction. Sales taxes paid on motor vehicles may be added to the amount only up to the amount paid to the general sales tax rate. You check a box on Schedule A - Itemized Deductions to indicate whether the deduction is income or sales tax.
Deductible real estate taxes are usually state, local, or foreign taxes on real property. If a portion of your mortgage payment goes into escrow and your lender pays your real estate taxes periodically to local governments from escrow, you can deduct only what you actually paid during the year. Normally, your lender will send you a Form 1098 - Mortgage Interest Statement at the end of the tax year. Personal property taxes are deductible when they’re based on the value of personal property, such as a car. The tax must be charged to you on a yearly basis, even if it’s collected more than or less than once a year. For information on non-business deductions for taxes, read Publication 17 - Your Federal Income Tax, Chapter 24. You may download Publication 17, or call
1-800-829-3676
.
For small businesses,
IRS
Code Section 44 offers a credit to help cover ADA-related eligible access costs. A business that for the previous tax year had either revenues of $1 million, or 30 or fewer full-time workers may use this credit, equal to 50% of the eligible costs in a year over $250 but under $10,250. The maximum credit is $5,000, used for charges including barrier removal, interpreters, or providing or modifying equipment. Expenses must be for required adaptations to existing facilities, and the credit isn’t for costs of new construction (www.ada.gov).
IRS
Code Section 190 allows any size business to expense up to $15,000 annually items normally depreciated on things tied to removal of architectural or transportation barriers at a firm compliant with accessibility standards. The two incentives can be used together if the expenditures qualify under Sections 44 and 190.
If you work and have a physical or mental disability limiting your employment functions, or a physical or mental impairment limits substantially one or more major life activities, you may be able to claim impairment-related work expenses by completing Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses, attached to your Form 1040. Publication 529 - Miscellaneous Deductions contains more detailed information. Also, the U.S. Dept. of Justice (DoJ) provides small businesses with a Tax Incentives Packet covering the Americans with Disabilities Act and tax benefits to help them comply with the law. The packet includes the
IRS
form and instructions for a credit, a list of
ADA
publications available free from the DoJ, and telephone numbers and Internet sites to answer
ADA
questions. Or, call the ADA Information Line at
800-514-0301
(voice), or
800-514-0383
(TTY)
10 a.m.-6 p.m. EST.
An automated service is available 24/7 to order publications. The
ADA
home page has information 24/7 (www.usdoj.gov/crt/ada).
Meanwhile,
IRS
contends millions of us “forgo critical tax relief yearly by not claiming the Earned Income Tax Credit (EITC)” for employees without high incomes. Taxpayers who qualify and claim the credit could pay less federal tax, pay no tax (whooopie!), or even get a refund (I’m there!). There's much to know about qualifying, and EITC Assistant - on www.
IRS
.gov - will guide you on eligibility and make this determination easier. EITC Assistant “speaks” English and Espanol, and rules are in Publication 596 - Earned Income Credit. Copies are at www.irs.gov/individuals/article/0,,id=130102,00.html,or call 1-800-829-3676.
After this taxing discussion, we offer a profound question you won’t find on www.irs.gov: “Why does a slight tax increase cost you $200, and a substantial tax cut saves you only 36 cents?”
