Giveth: Last year, Congress voted to raise the per-child tax credit to $1,000 from the scheduled $600, and in an effort to get cash into the hands of consumers and thereby boost the economy, it directed the IRS to mail out checks for the $400 increase immediately, using taxpayer's 2002 returns as a guide to their eligibility.
Taketh: Unless the IRS missed you, don't try to claim the full $1,000 per child on your return. You already got a big chunk of it. In addition, because of various limitations, taxpayers at the high and low ends of the income scale may have received an odd amount rather than an even $400 per child, and in fact may not remember or have records of exactly what they did receive. If that's a problem, go to the IRS's Web site, www.irs.gov, and click on "Remember Your Advance Child Tax Credit." You can fill out an online form and the agency will remind you how much you got.
David Brooks looks through stacks of tax forms at a New York public library. Some tax credits require special forms.
(Daniel Acker -- Bloomberg News)
So what can you do? The best course, according to experts, is to try not to overlook any break to which you're entitled -- and the law is full of them now for families, students, savers and others -- and hope that when you work them all through your return, you get at least some benefit.
Once upon a time -- in the late 1980s, actually -- income was pretty much just income when it came to tax rates. But now the tax law makes a mind-numbing number of distinctions. In addition to the usual categories of wages, interest and tax-exempt interest, and short- and long-term capital gains, we now have both dividends and "qualified" dividends, and capital gains that were realized from Jan. 1 through May 5, and capital gains that were realized later -- dubbed post-May 5 gains on IRS forms.
Qualified dividends were put into the law to offset the double taxation of corporate profits. In the past, the company paid tax on its income, then its shareholders paid tax on their dividends, which presumably came from what was left of the profits. Now, dividends paid from already-taxed income qualify for special low rates with a maximum of 15 percent.
However, if you bought or sold shares, you have to watch the holding period. Congress didn't want investors buying shares, holding them just long enough to get the low-tax dividend, then selling them again. So there is a minimum holding period. Originally a taxpayer was required to hold the stock 61 days during a 120-day period beginning 60 days before the ex-dividend date. Experts later realized this caused a problem for people buying or selling at the last minute, so last month the IRS extended the window to 121 days. Note that the agency did not change printed materials such as Publication 17, Your Federal Income Tax (Chapter 9); Publication 553, Highlights of 2003 Tax Changes; or Publication 564, Mutual Fund Distributions. So check the IRS Web site.
If you have qualified dividends and capital gains but they are only from mutual funds, you may be able to compute your tax using a worksheet included in the instructions for Form 1040. But otherwise, if you have capital gains, you need to fill out and file Schedule D with your return. That is no fun, but, like many IRS forms, it will lead you through the process if you just focus on filling in each line and don't think too hard about how things fit together.
These fall into two categories -- "above the line" and below. Above-the-line items are technically adjustments to income, entered on the front of the return, and available to taxpayers who take the standard deduction. They include a special deduction of up to $250 for teachers and other elementary and secondary educators who bought books, supplies, software or other material for classroom use.
Also above the line are IRA contributions, student-loan interest and a deduction for tuition and fees (new in 2002). These all have limitations, so if you think you might be eligible, consult the instructions for Form 1040 or 1040A. (You cannot use Form 1040EZ for these.)
And lumped in with this group, but not given a separate category, are a menagerie of deductions such as for clean-fuel vehicles, Archer medical savings accounts and jury-duty pay that your employer makes you turn over to it because you still got your salary.