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Where to find tax breaks

You won't see a space for them on the forms the IRS sent you. And maybe not even in the tax prep software you beat the rush to buy weeks ago. But the money-savers are there, hidden like unadvertised specials. We'll fill you in.

By HELEN HUNTLEY
Published January 28, 2007

This income tax season starts off with the caution flags flying.

If you're not careful, you could miss out on valuable tax breaks, from the telephone tax refund to the sales tax deduction. Everybody should employ an extra dose of caution this year, but you really need to WATCH OUT if:

-You're a Florida resident who itemizes deductions.

-You're a teacher who spends your own money on school supplies.

-Your family pays college tuition not covered by a scholarship.

"They say they're trying to simplify taxes, but every year it gets more involved," said Linda Walters, who has an accounting and tax service in Spring Hill. "It's getting very difficult for people to prepare their own. They may be losing tax credits that they might not be aware of."

And one reason someone might not be aware of the credits is that they aren't on the tax forms the IRS sent out in the mail.

"The last-minute changes threw a curve at everyone," said Mark Steber, vice president of tax resources for tax preparer Jackson Hewitt in Sarasota.

The eleventh-hour breaks will be familiar to many taxpayers because they took them on last year's return. Just like last year, teachers get to deduct up to $250 spent on classroom supplies. Families can deduct up to $4,000 spent on tuition, within limitations based on income. And most broadly, all of us who don't pay state income tax can deduct our sales taxes, either what we actually paid or an amount figured from an IRS table. However, all those benefits had expired as scheduled. Even though Congress voted in December to extend them, the IRS already had taken them off the tax forms.

So here's how to cope:

-Take your time filing your return.

If you are claiming the tuition, sales tax or educator deductions, the IRS cannot process your return before Feb. 3.

"I'd discourage anybody from filing before mid February to make sure commercial software and IRS computers are okay," said Jon Naglich, who does taxes for clients in Tampa and Brandon.

Waiting could be beneficial if you have a brokerage account. Many brokerages are expected to send out revised 1099 forms this year. If you get one after you've filed, you may need to file an amended return.

-Get help if you need it.

In addition to the professional tax preparers set up in discount stores and strip shopping centers, there are libraries, civic centers and banks where volunteers prepare returns for low-income and older taxpayers. One focus is helping low-income working families claim the earned income credit. You can watch the newspaper for listings of tax help sites or call the IRS toll-free at 1-800-829-1040 to find a site near you.

-Update your software.

If you plan to do your return on a computer with installed software, it's essential to go online and download the latest updates.

"TurboTax was available in late November, so folks out there may have a product that needs to be updated," said Intuit spokeswoman Julie Miller. "The Web version is updated automatically so you don't have to worry about that."

-Be very careful with paper returns.

If you want to claim any of those last-minute deductions, you'll need to put them in the right spot on your return, along with the appropriate code letters.

The easiest to manage is the state sales tax deduction. The IRS says to use the letters "ST" to show that you're claiming sales tax in the spot on Schedule A for the state income tax deduction. That not only makes sense, but it's easy since you can only claim sales tax or income tax, not both.

The education-related deductions are more complicated to claim. Teachers' out-of-pocket expenses are deductible on the 1040 line for the Archer Medical Savings Account Deduction. You write in an "E" to claim the educator deduction or a "B" to claim both deductions on the same line.

The tuition deduction is penciled in on the 1040 line for "domestic production activities." You write in a "T" for the tuition deduction or a "B" for both.

If you use a "B" to claim two deductions on one line, you're supposed to put the breakdown on an attached statement.

What else is new?

Even if you're not affected by any of the last-minute changes, you need to be on the lookout for other items that are on the tax forms. Here's a brief rundown:

-The telephone tax refund applies to most returns, offering a credit that starts at $30 and goes as high as your actual expenses.

-Credits are available for installation of energy-efficient windows, doors, water heaters, air conditioners and solar devices. However, there are lots of rules and limitations, which means it's a good idea to cozy up with Form 5695 and its instructions if you have any thoughts of claiming the credits.

-The kiddie tax now applies to children younger than 18, not just those younger than 14. The first $1,700 in taxable investment income is taxed at the child's rate. Anything above that is at the parent's highest rate.

-This year you can opt to have your refund electronically deposited to two accounts.

-Stricter rules went into effect Aug. 17 for donated clothing and household goods. They had to be in good used condition or better to claim a deduction - unless an item was worth $500 or more and you got an appraisal.

-Special rules apply to certain IRA distributions. There's no tax on up to $100,000 in charitable donations people 701/2 or older made directly from their IRAs to charities. There's a tax, but no penalty on withdrawals by some reservists called to active duty.

-Workers 50 and older can contribute more to IRAs, up to $5,000 apiece for 2006. The limit remains $4,000 for those younger.

-Higher exemption amounts ($62,500 on a joint return, $42,500 for singles) will allow more people to escape the dreaded Alternative Minimum Tax. These are scheduled to drop for 2007 returns, but Congress often extends tax breaks.

-Inflation adjustments affect parts of this year's returns. Personal exemptions are worth an extra $100. The standard deduction goes up $150 for singles and $300 for married couples.

And one last bit of good news: Just like last year, we get two extra days to get our returns completed and on their way to the IRS. Returns are not due until April 17 because the 15th falls on a Sunday and the IRS decided last week that we all should benefit from the Washington, D.C., celebration of Emancipation Day on April 16.

Helen Huntley can be reached at hhuntley@sptimes.com or (727) 893-8230.

Fast Facts:

Toll-free help

1-800-829-1040: Questions on individual tax returns. (7 a.m. to 10 p.m. weekdays)

1-800-829-4933: Questions on business returns or accounts.

1-800-829-3676: Request forms and publications by mail. IRS Publication 17, "Your Federal Income Tax," is particularly helpful.

1-800-829-4477: Listen to recordings on tax topics.

1-800-829-1954: Check on a refund three weeks after electronic filing or six weeks after paper filing.

1-877-777-4778: Resolve problems when other channels have failed.

1-800-829-4059: use TTY/TDD machines.

9450 Koger Blvd., St. Petersburg, (727) 570-5552

3848 W Columbus Drive, Tampa, (813) 348-1831

Both are open 8:30 a.m. to 4:30 p.m. weekdays and serve the Tampa Bay area.

For information about a volunteer tax preparation location near you, call toll-free 1-800-829-1040.

Go to www.irs.gov to find forms, publications and answers to frequently asked questions and check on your refund. Online calculators can help you determine if you are eligible for the Earned Income Credit or subject to the Alternative Minimum Tax. There also are links for free electronic filing.

[Last modified January 28, 2007, 07:02:06]