This Year's Stimulus Rebate Is One Incentive to Finish Filing
Sunday, March 9, 2008
You've heard it before, but this year the advice gains new import: Be sure to file.
If you're hoping to get your rebate from the economic stimulus legislation, you must file a tax return this year -- and the earlier the better.
Another bit of advice for this season: Get receipts for all charitable donations.
Overall, though, this April 15 will be weighed down with fewer than usual changes in the tax code, experts say. That's because 2007 and early 2008 did not have as much tax legislation as previous years did.
"Each year we generally get tax legislation that comes through," said Greg Rosica of the accounting firm Ernst and Young. "But this year and last year were a little bit less busy than usual."
"There's nothing major" on the list of new tax provisions that taxpayers need to fret about, agreed John Battaglia of Deloitte Tax.
President Bush's stimulus bill promises rebates of up to $1,200 per couple. To make sure the money arrives without a hitch in May, federal officials say, you should be sure to file your 2007 income tax return as early as possible. Otherwise, your rebate could be delayed.
In addition, taxpayers do not need to worry about the one major tax change -- involving the alternative minimum tax -- that threatened to make their lives much more difficult and expensive this year. At the last minute in 2007, Congress stepped in to prevent millions of middle-class families from falling under the AMT, which would have increased their tax liabilities, in some cases significantly.
The AMT was enacted in 1969 to make sure millionaires paid at least some taxes, even if they had lots of shelters. But a small change in the law now requires middle-class people to pay the tax too unless Congress intervenes.
Lawmakers almost missed the deadline to fix the AMT last year but finally did act, so only the approximately 4 million people who paid the tax last year will have to pay it again next month.
"People who live on the East and West Coasts, where the AMT hits people most, were concerned," said Bill Fleming of PricewaterhouseCoopers. "But it worked out okay in the end."
Had the AMT "patch" not been approved, 81 percent of taxpayers with taxable incomes of $100,000 to $200,000 would have been affected by the AMT, according to the congressional Joint Committee on Taxation. Nearly half of taxpayers who earn $75,000 to $100,000 would also have been affected.
Thanks to last year's law change, however, 10 percent of those who make $100,000 to $200,000 and fewer than 2 percent of taxpayers who earn $75,000 to $100,000 will have to pay the AMT.
Writing off charitable contributions will be tougher. Lawmakers, concerned that taxpayers were falsely claiming charitable deductions, passed a measure that requires taxpayers to have written, dated receipts or canceled checks to prove they made donations of any size.
Previously, contributions of less than $250 did not require such documentation.
The recent decline in the housing market, precipitated by a credit squeeze and other events, compelled Congress to make it easier for homeowners in trouble to restructure their loans. In years past, debt that was written off a lender's books in such restructurings had to be included as income on homeowners' tax returns. The new law eliminates that requirement, which, in effect, reduces the cost of such debt changes to the already struggling homeowners.
In another benefit to homeowners, people can now write off the premium payments on their mortgage insurance. Like many other deductions, this benefit phases out the higher a person's income gets.
The Internal Revenue Service has for a long time tried to prevent taxpayers with lots of unearned -- meaning, investment -- income from reducing their tax payments by attributing that income to their young children, who almost always pay taxes at much lower rates. For 2007 tax returns, however, taxpayers will have to pay their own tax rate on any unearned income collected by their children up to age 18. A couple of years ago, they had to pay at their own, usually higher rate on income of their children up to age 14.
Congress extended for 2007 a few tax breaks that had been on the verge of expiring. One allows low- and middle-income families to deduct up to $4,000 for educational expenses, such as the cost of college courses and textbooks.
A second still-alive benefit permits elementary and secondary school teachers to write off supplies they personally buy for their classrooms. The deduction of up to $250 is for books, computer equipment and other kinds of in-class supplies.
A third break allows people to decide which they would prefer to deduct: their state sales tax payments or their income tax payments, whichever is higher. "Heavy-spending people and those who live in low-income-tax states should know" about the option they still have, Fleming said.
People over the age of 70 1/2 are now allowed to direct up to $100,000 from their individual retirement accounts to charity and not get taxed on the distribution. But Fleming warned that taxpayers need to note on their returns where the donation went.
The reason: The form that tells the IRS that the distribution took place does not say where the money ended up, so the agency will probably assume it became income. That means a good deed could well be undone unless care is taken when filing those tax returns.