What You Need To Know Before Filing Your Taxes
April 2, 2008; Page D1
By TOM HERMAN
The taxman giveth, and the taxman taketh away.
As millions of taxpayers scramble to meet the April 15 filing deadline, they need to pay attention to several new tax-law twists -- and watch out for a few classic blunders.
Among the new provisions: a deduction for mortgage-insurance premiums and special relief when a lender forgives a debt on your home. There's even a new break for people who work for the Central Intelligence Agency, the National Security Agency and other similar organizations -- and it's not top secret.
But there are also new restrictions, such as a new record-keeping rule for cash donations. Separately, the Internal Revenue Service issued a long-awaited ruling last year shooting down an investment idea that some accountants had recommended to their clients.
Even if you've mastered all the new rules, it's easy to trip over a few old ones. For example, most married couples probably realize they're better off filing jointly, rather than separately. But for some people, filing jointly can be a major error. Separately, many upper-income taxpayers who worked for two or more employers last year may have paid too much in Social Security taxes.
If you can't finish your return by April 15, you can file for an automatic six-month extension. But filing on time is especially smart this year because the Treasury Department will be handing out more than 130 million economic-stimulus payments, starting in May. To get a check this year, you have to file a return for 2007.
Here are a few significant changes to look for this year, as well as other last-minute tips and warnings from accountants and enrolled agents:
* Individual Retirement Accounts. You can still make a contribution for 2007 to an IRA as long as you do it by April 15.
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* New breaks. The new mortgage-insurance deduction is limited to those with income below a certain level. The deduction begins to disappear once your adjusted gross income exceeds $100,000, or $50,000 for a married person filing separately. It disappears completely once income exceeds $109,000 or $54,500, respectively.
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* Charity. You are no longer allowed to deduct a cash contribution, no matter how tiny it may be, unless you have proof. Proof includes a "bank record," such as a canceled check, bank statement, credit-union statement or a credit-card statement, showing the name of the charity, the date of your gift and the amount. Or you could get a receipt from the charity showing all those details.
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* Don't forget to check to see whether it would make sense to deduct your state and local sales taxes, instead of state and local income taxes. This is especially important for people in Florida, Texas and other states with no income tax. But many people in other states also may benefit from it. Just remember: You can't deduct both sales taxes and state and local income taxes. And you can't deduct either unless you itemize.
* If you've been looking for work, certain job-search expenses may be deductible -- even if you haven't yet landed your dream job. But you can't deduct any of these expenses if you're looking for a job in a new occupation, or if you're looking for work for the first time, or if there was a "substantial break" between the end of your last job and your search for a new one, the IRS says. This can get tricky. Consider consulting a tax pro.
* Many people automatically claim the standard deduction even though they would be better off itemizing, government studies have shown. Crunch the numbers both ways to see which is better.
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ADDITIONAL READING
* For more details on tax-law changes, see
IRS Publication 553 (.pdf)
* For more information on tax issues affecting individuals, see
IRS Publication 17 (.pdf)
* Here is the IRS form to use to
apply for a filing extension.
(.pdf) This extension will give you more time to file -- but not more time to pay what you may owe.