Question: I am a 19-year-old student who worked last summer before starting college. I didn't earn much money and owed no taxes - but I had to file a return to get a refund of what my employer withheld. Isn't it a waste of government time and money to process my return?
Answer: It sure is - and the Internal Revenue Service has a simple procedure to avoid precisely the problem you wrote about.
If you had no income tax liability in 1978 and expect to have none in 1979, you canrequest your employer not to withhold any income tax.
Simply file with your employer a Form W-4 (Employee's Withholding Allowance Certificate") on which you claim exemption from tax withholding by writing the word "exempt" on line 3.
This will not get you off the hook for social security tax (FICA), which must be withheld in most cases; but it will eliminate income tax withholding. And of course it will also do away with the need to file a tax return for a refund, if you are not otherwise required to file.
This same procedure was available last year. It's too bad you weren't aware of it, and that your employer failed to call it to your attention
q: I moved to this area last fall to take a new job. I sold my home and bought a new house here, deferring gain on the sale. Now my new boss wants to transfer me to the west coast, so I'm faced with another house sale. Will I be hit with the tax on the accumulated gain now?
A: No. A provision of the Revenue Act of 1978 modified the rule governing multiple sales of a principal residence during an 18-month period.
Under the new rule you may continue to defer capital gains tax if the subsequent sale/purchase was due to a change in employment location.
The move must meet the rules for deductibility of moving expenses (whether or not you actually claim the deduction); and of course the sale and purchase must qualify under the rules for deferral of gain.
Q: Why doesn't the IRS put all of us taxpayers on a staggered reporting system and avoid the horrendous April 15 crunch?
A: At first glance this may seem like a fairly simple thing to do. But in 1977 the RIS made an extensive study of the situation, and found that the present system is preferable to any of the alternatives considered.
The participants included in the study a survey of taxpayers, a questionaire to state tax administrations, inputs from professional tax preparers, and an analysis of projected costs and benefits of the various alternatives.
The people conducting the survey concluded that no feasible alternative to the present system has yet been found which would be acceptable to taxpayers, tax return preparers, and the IRS.
It would certainly be nice to spread the preparation and submission of returns over all 12 months of the year. But I shudder at the complications introduced, for example, by attempting to apply a uniform effective date for something like the revised tax rate schedules directed by the Revenue Act of 1978.
Q: Why do I have to report as income my state tax refund? Isn't this simply a return to me of my own money - money I have already paid tax on?
A: Yes, it is a return to you of money previously included in income: and for many people a state tax refund should not be reported as income.
Look carefully at line 11 on the 1978 Form 1040. There's a note there that says "does not apply unless refund is for year you itemized deductions."
In other words, you only have to report a state tax refund as income if you have previously claimed the original state tax payment as an itemized deduction on Schedule A.
If you included in income a state tax refund covering a year in which you had used the zero bracket amount (old standard deduction), then you overpaid your federal income tax.
You can get a refund of the overpayment for each year from 1976 on by filing an amendment (on Form 1040X). File a separate 1040X for each year; the amendment for 1976 must be filed by Apr. 15, 1980.*