Print

Email story

Comment

Letter to the editor

Time to file your tax returns - here's what to look for

Ready, set, file. Here's who should look for what after the dust has settled over last-minute changes.

By Helen Huntley, Times Personal Finance Editor
Published February 17, 2008

Josh Progana, dressed as Uncle Sam, and Luis Mercado, as the Statue of Liberty, try to persuade drivers to visit Liberty Tax Service in Hudson. Special report: Your tax questions answered
	[Brendan Fitterer | Times]

It's getting to be an annual tradition. The IRS finishes printing its tax forms, and Congress changes the law. This year the last-minute tinkering delayed filing for millions of people and made tax software packages and some printed materials obsolete.

At least it will save some of us money.

"There's a lot of consternation in the public this year, a lot of confusion," said John Hewitt, founder of Liberty Tax Service, a Virginia Beach, Va., tax service whose franchisees use costumed Uncle Sams and Lady Liberties to drum up business.

In addition to the 13.5-million people who had to wait to file, many others delayed filing, Hewitt said, because they mistakenly thought their returns were among those affected by the changes.

But the IRS gave the all-clear signal last week and finally, we can get down to business.

Professional preparers, online tax sites and tax software packages that have been updated online should be set to handle the changes. But if you rely on printed forms, extra caution is in order.

You are affected by the last-minute changes if you need to calculate the alternative minimum tax or if you got a 1099 form for mortgage debt forgiveness.

You'll also want to watch out for some of this year's earlier changes if you made cash contributions to charity or took out an insured mortgage last year or if your income is high enough to be affected by the phaseout of personal exemptions or deductions.

The AMT changes are a big deal that most of us won't even notice. If Congress had not acted to extend expiring exemptions, as many as 25-million taxpayers would have had to pay an average of $2,000 more in taxes, according to Treasury estimates.

Now most of us remain exempt from the tax, which is an alternate way of calculating your tax liability without the benefit of some deductions and other tax breaks. If you are trying to figure out whether you have to pay the AMT, be sure to use the updated exemption numbers. You can get a new Form 6251 at www.irs.gov.

"If your situation hasn't changed, you should be in or out of the AMT pretty much the same as you were last year," said Mark Luscombe, analyst for the tax information provider CCH in Chicago. He notes that those who do fall under the AMT will be able to use certain tax credits, including education tax credits, to reduce their tax liability.

The last-minute changes also are very good news for borrowers who had mortgage debt on their principal residences forgiven last year. That often happens when a lender forecloses or agrees to sale of the property for less than the amount of the mortgage. In the past, the forgiven debt was treated as taxable income unless the borrower was insolvent. Now it won't be taxed if the borrower meets the law's guidelines, which include that the debt must have been related to the acquisition or improvement of the borrower's home.

Also new this year:

- Checking on charity. All cash charitable contributions, no matter how small, must be supported by a canceled check, payroll deduction record, bank statement or receipt. If you dropped cash in the collection plate and can't prove it, you can't deduct it. If your contribution was more than $250, you need a receipt from the charity.

- Mortgage insurance. You can deduct qualified mortgage insurance premiums if you itemize, but only on mortgages that you took out in 2007. If your mortgage dates back to an earlier year, you are out of luck.

- Bigger numbers. The personal exemption is up to $3,400 and the standard deduction has increased to $5,350 single, $7,850 (head of household) or $10,700 (married filing jointly).

- A break for big incomes. High-income taxpayers will get to keep more of their deductions and exemptions, thanks to changes in the phaseout rules.

Of special note:

- Sales taxes are deductible if you itemize, although this will be the last year unless Congress extends the break. Remember if you bought a vehicle, boat or building materials, you can add those sales taxes to your total from the tax table.

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

Watch for scams

The IRS will not e-mail you about your taxes except at your request. It will never e-mail you or call you to ask for your Social Security number or bank account information. Several IRS-related scams are circulating, all designed to trick people into revealing their personal information, which then can be used to commit identity theft. The scam communications all purport to be from the IRS but deal with a variety of subjects, from audits and check cashing to rebates and refunds.

[Last modified February 15, 2008, 19:46:51]