This 1981 edition of The Washington Post Tax Guide startswith some good news and some bad news.

The good news: The rules for 1980 tax returns have not changed significantly from 1979. The forms and schedules, the tax tables, the regulations governing the reporting of income adjustments, deductions and credits aren't any more complicated than they were last year.

So if your financial situation remains aboutthe same as it was, and you got through the preparation of your 1979 return without too much trouble, you should be able to breeze through this year.

The bad news is the same as the good news. The forms and schedules, the tax tables, the regulations governing the reporting of income, adjustments, deductions and credits aren't any simpler than they were last year.

So if you had trouble figuring things out lastyear, you're likely to have the same kind of trouble this year. And if you were unhappy about the size of your 1979 tax bill, break out the headache pills again -- because it isn't going to look any better for 1980. In fact, if you got araise last year -- even one just to cover the rising cost of living -- it's likely to be worse.

What these special tax articles will attempt to do is explain the rules and offer some tips that will help in filling out your federal and state tax forms.

Your federal income tax return for 1980 must be postmarked no later than midnight Wednesday, April 15.

If you can't make the deadline, don't ignore it. You can get an automatic extension to June 15 by filing IRS Form 4868 by April 15. But you must estimate your tax on that form and pay an estimated deficiency when you file the requestfor extension.

If you're out of the country on April 15,you get an extension to June 15. The extension is automatic; you don't have to request it. But when you file your return, write -- in the blank space in the "Filing Status" block -- "Outside U.S. on April 15, 1981."

Any payment due should be attached to your tax return, unless you have asked the IRS to figure your tax. Make the check or money order payable to "Internal Revenue Service," and enter your Social Security number on the payment. Do not send cash.

If you live in Maryland or the District, send your federal return tothe Internal Revenue Service Center, Philadelphia, Pa. 19255. Federal returns of Virginia residents go to the InternalRevenue Service Center in Memphis, Tenn. 27501.

If you received an instruction booklet from the IRS, use the peel-off label from the booklet on the return. Make any necessary corrections to the information. If you use a professional preparer, bring in the booklet or at least the page with the label.

This label does not contain any special coding to identify a potentially troublesome return. It permits optimal use by the IRS of their expensive computer equipment, saving employe hours and taxpayer money.

You probably can complete your own tax return, it you're prepared to spend hours in reading and research -- necessary particularly if your return includes anything other than the normal income and deduction items.

In most cases, the IRS has done an excellent job in the design of the various forms and the accompanying instructions. But the basic complexity of the tax structure makes it virtually impossible to explain many areas in simple terms.

If you need more detailed instructions than are given in the information booklet that accompanies the tax forms, pick up a copy of IRS Publication 17, "Your FederalIncome Tax," at your local IRS office.

If personalized help is necessary, or you want answers to specific questions,you can get free advice and assistance from the IRS, eitherin person at any IRS office or by phone over special taxpayer assistance lines.

Taxpayers who live in the District or in Montgomery or Prince George's County should call 488-3100 for help. Residents of Northern Virginia are served by the Baileys Crossroads office; the number there for taxpayer assistance is 557-9230.

You will generally get good information from the people at the local IRS offices. But duringthe height of tax season, the taxpayer assistance staff is augmented by part-time and temporary help with limited training.

And strange as it may seem, the government is not bound by the advice you receive. If your return is audited, citing advice from an IRS employe will not get you off the hook if it turns out that the advice was wrong.

Should you decide that tax preparation has gotten too complicated and that you want to use a professional tax preparer, you have a pretty wide choice. Local tax preparation offices pop up every January in homes, offices and stores.

Qualifications of an independent preparer may range from a housewife or retiree who has read a tax book or taken a short course in tax preparation to a highly skilled accountant who works for thegovernment or private industry and "moonlights" for a few months for the extra income.

The large chain operations generally can give good service at low cost if you have a fairly routine tax situation. As a rule, however, they are not geared to handle a complex return or an unusual situation.

In that case, you may need the services of a public accounting firm or a tax attorney. As you might expect, their fees are usually higher than the fees of either the chains or the local preparers.

Tax preparers who are neither attorneys nor certified public accountants may take a comprehensiveexamination given by the IRS. Those you pass the exam are known as "enrolled agents."

An enrolled agent may not havethe broad background in law or general accounting of an attorney or CPA but is usually competent in tax matters.

Whatever level of professional assistance you select, be sure the preparer (or parent firm) will be around all year to assist in answering queries from the IRS. Some of the local operations disappear on April 15.

Whoever prepares your return may accompany you or represent you at an IRS audit. But only a CPA, attorney or enrolled agent may represent you at the higher appeal levels of the IRS or in the tax courts.

There are no federal or state licensing procedures which eliminate the incompetent or unscrupulous tax preparer. So you're really on your own.

Regardless of the qualificationsof the preparer, you have full and final responsibility forthe accuracy and legality of your return; you should understand -- and agree with -- every word and number on it.

Donot sign a blank tax return or one that has been filled outin pencil.

A qualified preparer should be familiar with many little-known tax avoidance techniques for legally reducing your tax liability. But tax evasion -- the reduction oftaxes by deliberate misstatement or omission -- is against the law. So avoid anyone who tries to tell you what you can"get away with."

Anyone who prepares the tax return of another for pay must sign the return and enter identification or Social Security number. And the preparer must give you acopy of the return at the same time you are presented the original for your signature. Who Must File

Whether you have to file a federal income tax return for 1980 is determined by a combination of total taxable income, age and maritalstatus.

Filing minimums for the various categories of taxpayers and their number of normal personal exemptions -- each worth $1,000 -- for each category are shown in the accompanying table.

Special rules: You should file a return to claim a refund of income tax withheld from your pay even if you are not otherwise required to file.

If you are entitled to a refund solely as a result of the earned income credit, you should file even if you have no tax liability and nottaxes were withheld (or paid on an estimated return) duringthe year.

If during 1980 you received advance payments of the earned income credit from your employer, you must filea return regardless of your tax status or other income.

You must file a return if you are eligible to be claimed as a dependent on your parent's return and you had taxable interest, dividends or other unearned income of $1,000 or more.

And finally, you are required to file if you had net income of $400 or more from self-employment, regardless of otherconditions. Which Form to Use

Any taxpayer who wishes may use Form 1040, the long form. But you should use the short form, 1040A, if you meet all three of these requirements: s

Your 1980 income did not exceed $20,000 (or $40,000 on a joint return).

Your income consisted only of wages or other employe compensation and $400 or less of either interest or dividends.

You use the zero bracket amount and do not itemize deductions.

If you don't meet all of these criteria, you must use Form 1040. The long form is also required if you claim any "adjustments to income" -- such as movingexpenses, an IRA or Keogh investment, alimony payments or adisability income exclusion.

Form 1040 is mandatory if you are entitled to the credit for the elderly, for child or dependent care expenses, or for residential energy expenditures. (You can claim the credit for political contributions as well as the earned income credit on Form 1040A.)

And Form 1040 must be used if you compute your tax liability by income averaging; if you paid estimated tax for 1980 or wish to apply part or all of any 1980 refund to 1981 tax; or if the total number of your exemptions exceeds the highest numbergiven in the tax table.

Finally, you must use Form 1040 if you may be claimed as a dependent on your parent's return, had $1,000 or more in unearned income, and had earned income of less than $2,300 ($1,700 if married filing separately). Also use the long form if you file as a "qualifying widow(er)," as explained elsewhere. Your Filing Status

Your filing status generally will be determined by whether you are married or single, but also can be affected by death, divorce, legal separation, living arrangements and people who depend on you for support.

If you were married Dec. 31, youare considered by the IRS to have been married for the entire year, and you may file a joint return. If you were unmarried (single, divorced or legally separated) on that date, then for income-tax purposes you are considered to have been single for all of the year.

Some factors to consider ifyou were married:

You may elect to file separate returns even if you are married, but most couples will pay less tax if they file a joing return. In only a few cases -- usually when both husband and wife have substantial independent incomes -- will separate returns be the better method.

If you do file separately, you must both use the same method for computing the tax. That is, if one itemizes deductions, the other also must itemize and may not use the zero bracket amount (ZBA, formerly called the standard deduction). When married and filing separately, if the total of itemized deductions (line 39 of Schedule A) is less than the $1,700 ZBA, you must perform a special calculation in Part II of Schedule TC. (See page 11 of the instruction booklet.)

If you and your spouse were living apart but were not legally separated, you still may file a joint return. This might result ina lower combined tax than filing separately, but each of you is then individually responsible for the entire tax.

Ifyou were married but living apart from your husband or wifefor the entire year, you also may file as a single individual if you paid more than half the cost of maintaining your home during 1980 and your home was also the principal home ofyour dependent child for more than six months of the year.

Other rules affect the recently widowed:

If your husband or wife died during 1980 and you had not remarried by Dec. 31, you may file a joint return and claim the exemptionof your deceased spouse as well as your personal exemption. In this case, sign the return yourself, then enter "surviving spouse" under your signature. Enter the date of your spouse's death in the name and address space at the top of theform.

If you are due a refund on the joint return, file Form 1310 with the return to establish your right to the refund. Do not send a copy of the will or death certificate with the return.

If an executor or administrator has been appointed for the estate, he may have filed, or may intend tofile, a separate "final return." In any case, the estate tax return is likely to have an impact on your income tax return. If the executor is not a tax professional, you may needhelp in this situation.

If your husband or wife died during 1978 or 1979 and you had not remarried by the end of 1980, you may be eligible to file as a "qualifying widow(er)" and use the joint return tax rates, if you meet all three of these tests:

1. You were eligible to file a joint return in the year of your spouse's death, whether you actuallyfiled that way or not.

2. Your home was the main home during 1980 of a child whom you claim as a dependent.

3. You paid more than half the cost of maintaining that home for the entire year.

If you qualify, you may not claim a personal exemption for your deceased husband or wife, even though you are using the joint return tax rates. The personal exemptions can only be taken if death occurred in 1980.

If you were single on Dec. 31:

You may qualify for filing as "head of household" -- and the lower tax rates that gowith that status -- if you meet any of the following tests:

You paid more than half the expense of maintaining your home, which was also the principal home all year of your unmarried child, stepchild, foster child or grandchild (whether or not the child qualifies as your dependent).

You paid more than half the cost of upkeep for your home, which was also the principal home of any other relative you claim as a dependent (except a dependent under a mutual support agreement).

You paid more than half the cost of maintaining a home that was the principal home of your dependent mother or father (or both), even if you did not live in it yourself.

If you file as head of a household, enter on line 4 of Form 1040A the name of the person who makes you eligible for thatstatus. If there is more than one such person, you need enter one name only. Personal Exemptions

Each taxpayer isallowed a single personal exemption, which eventually translates into a $1,000 income exclusion on the tax return.

In addition to this basic personal exemption, a person who is65 or older or legally blind may claim an extra $1,000 exemption. But this additional exemption is available only to the filing taxpayer(s); it may not be claimed for a dependent. (If your 65th birthday was Jan. 1, 1981, you may take theextra exemption on your 1980 return.)

To claim an exemption on your tax return for a dependent, he or she must meet five tests:

Citizenship or residency test. A dependent must be either a U.S. citizen or have resided in the United States, Canada or Mexico during 1980. This test is waived for an alien child adopted by and living with a U.S. citizen in a foreign country.

Relationship or member-of-household test. A relative (as defined on page 7 of the 1040 instruction booklet) need not have lived in your home to qualify as a dependent. If you file a joint return, a dependent meets this test if related to either spouse. Once this qualifying relationship is established, it does not end because of deathor divorce. For example, if your husband or wife had died,you may continue to claim your former father-in-law as a dependent, even if you have remarried.

A dependent who is not related must have lived in your home for the entire year. Absence at school or for hospitalization is not disqualifying if your home was his home when not away.

Income test. To qualify, a dependent must have received less than $1,000 in income during 1980, but you need count only income which is subject to tax. Do not include, for example, bona fidegifts, Social Security payments or VA benefits; interest ontax-exempt securities; or nontaxable scholarship payments.

The income test is waived for a child who was under the age of 19 on Dec. 31 or who was a full-time student (regardless of age) during any five months of the year.

Support test. To claim an exemption for a dependent, you must have provided more than half of his or her support during 1980. Unlike the income test, all income of the dependent (except scholarships), whether taxable or not, must be considered in determining how much the dependent contributed to his own support.

However, only as much of that income as was actually spent by the dependent on items of support -- that is, on necessary living expenses or on capital purchases such as a car or TV set -- need be included in your calculation.

Donot count as support any money your dependent deposited in a savings account, unless he withdrew it later in 1980 and then spent it on his own support. Any money your dependent paid for life insurance premiums, income tax payments or Social Security contributions also should be excluded.

Include in your contributions to support such basic living expenses as lodging, food, clothing, medical care and education, aswell as items bought for the dependent's personal use (but not items bought for the entire household).

If the dependent lived in your home, count the fair market value of the lodging provided, but only the actual cost of food or other support elements.

If you provided separate living quarters, such as an apartment for an elderly parent, count the costto you of that housing. But if your parents lived rent-free in a house you owned, use the fair rental value (based on comparable housing in the same area) rather than the cost.

Joint return test. Normally a married person who files a joint return with his or her spouse may not be claimed as a dependent by another taxpayer (except in the case of a jointreturn filed solely to obtain a refund of taxes withheld).

However, you may claim an exemption for a married dependent who meets the other tests if the dependent's spouse filesa separate return and doesn't claim an exemption for your dependent.

As a general rule, a divorced parent who had custody of a child for the greater part of the year may claim the child as a dependent. But the other parent may take theexemption if the divorce decree or separation agreement says so and he or she contributed $600 or more to the child's support during 1980.

In the absence of a specification in the agreement, the noncustodial parent still may claim the exemption if he or she provided at least $1,200 for support and the parent having custody cannot prove a larger contribution to the child's support. Reporting Income

The first step in arriving at your tax liability is to determine the amount of your income.

Not all income is subject to tax. Here are the major kinds of income that should not be reported on your federal tax return. (State requirements may be different.)

Social Security benefits.

Veterans Administration payments.

Disability retirement pay from the armed forces.

Gifts or bequests.

Lump-sum insurance benefitsreceived on the death of the insured.

Interest earned onstate or municipal bonds and specified dividends from tax-free mutual funds.

Military allowances and certain cost-of-living allowances for U.S. civilian employes overseas.

Workman's compensation payments for injury or illness.

Campaign contributions, unless diverted to personal use.

Dividends on a life insurance policy, unless total dividends received exceed total premiums paid.

Child support payments.

Amounts received in a civil court suit as damages forinjuries.

Different kinds of taxable income are reportedin different ways on your return. The accompanying table lists the principal types of taxble income and tells you where to report each type.

If you want more information aboutany category check out the IRS publication shown. These are all available either by mail (from the Service Center to which you send your return) or in person at any IRS office. And they're free. Income Adjustments

After you have added up your income, you should check to see if you qualify for any adjustments to income. These adjustments reduce the amount of income on which you pay tax, and they may be claimed regardless of whether you itemize deductions or take the zero bracket amount.

Moving expenses. If you changed yourresidence during 1980 to work at a new location, either forthe same or a different employer, you may deduct all or part or the exenses of the move. Two requirements must be met:

The distance between your old residence and your new place of employment must be at least 35 miles greater than the distance between your old residence and your former place of employment.

You must work in the new area, though not necessarily for the same employer, for at least 39 weeks in the12-month period after the move. If self-employed, you mustconduct your business full time for at least 78 weeks in the 24-month period after the move, including at least 39 weeks during the first year.

This test is waived if termination of employment is due to death or disability, transfer forthe employer's benefit or discharge other than for willful misconduct.

If you meet both tests, you can deduct from gross income several kinds of moving expenses.

The cost oftravel from the old to the new residence for you and your family -- including transportation, meals and lodging -- may be deducted. If you go by car, you may deduct either out-of-pocket expenses for gas, oil and repairs, or a flat 9 centsa mile. In either case, you may add tolls and parking fees. oDo not claim the cost of miles driven for sightseeing or for side trips to visit friends or family.

The cost of moving your household -- including packing and crating, insurance and any necessary storage -- is deductible, but charges such as for disconnecting or connecting appliances or for refitting carpets or draperies are not.

The costs associated with selling your old residence and buying a new home, including such expenses as broker commissions and legal fees, but not a loss on the sale.

Employe expenses. An outside salesperson -- one who sells away from the employer's place of business -- may deduct all necessary business expenses from gross income. If you're a salesperson, you should reviewIRS Publication 463 for a detailed explanation of the various expenses you may claim.

Most unreimbursed expenses of an employe who is not an outside salesperson may be claimed only as itemized deductions on Secedule A. But certain business travel and transportation expenses may be deducted as an adjustment even if you do not itemize.

If you traveled away from home overnight or longer on business, deduct the costs of transportation (travel to and from your destination and local transportation while there) plus meals, lodging and reasonable incidentals such as tips.

The cost of commuting between your home and work is not normally deductible.

But if you worked at two or more different places on the same day -- either for the same or different employers -- you may deduct the cost of getting from one job to the other.

If you used your car, you may deduct the calculated cost of gas, oil, repairs and maintenance, insurance, registration and depreciation. If you used the same car for both business and personal reasons you must allocate the cost proportionately.

To avoid these calculations, keep track of business mileage. You then can take a deduction of 20 cents a mile (up from 18.5 cents last year) for the first 15,000 miles and 11 cents a mile for anything over that. Whichever method you choose, tolls and parking fees may be added, but fines for traffic violations may not.

If you attend business conventions in foreign countries, you generally may claim expenses for up to two such trips a year, but there are limitations on the kinds and amounts of expenses you may deduct. See IRS Publication 463 for details.

Attach Form 2106 to your return to document employe business expenses claimed as either an adjustment to income or an itemized deduction.

IRA and Keogh deductions. Deposits into either a Keogh or Individual Retirement Account (IRA) are claimed as an adjustment to income. Take the total amount invested on behalf of 1980 earnings even if payments were made in 1981.

Alimony payments. Periodic alimony or separate maintenance payments to a former spouse required by a decree of divorce or ofseparate maintenance, a decree of support or a written separation agreement is an adjustment to income and may be claimed even if you use the zero bracket amount.

Payments specifically designated as support for a minor child are not deductible even if paid to your former spouse rather than directly to the child. But such payments may be a factor in determining who may take the dependent's exemption for the child.

Disability. The disability exclusion provides for a maximum annual exclusion of $5,000 if you were retired for total disability and had not reached age 65 by Dec. 31, 1980.

Exception: You are eligible if you were under 65 and had retired for any degree of disability and were permanently andtotally disabled on Jan. 1 of either 1976 or 1977.

The disability exclusion is limited by an income ceiling. If youqualify, use Form 2440 to determine the amount of your exclusion.

Veterans Administration payments for disability continue to be excluded from gross income. Military disability pensions and disability retirement pay are also exempt from tax if you were in the military service (or similar organization, such as Public Health) on or before Sept. 24, 1975. Your Deductions

For most people the decision on whetherto itemize deductions or to take the zero bracket amount (ZBA) is a relatively simple one. If the total of the deductions you can claim by itemizing is greater than your ZBA, youshould itemize; if not, use the ZBA.

For 1980 the ZBA remains unchanged from last year:

$3,400 if you are married filing jointly or are a qualifying widow or widower with a dependent child.

$2,300 if you are filing as a single person or an unmarried head of household.

$1,700 if you are married and filing separately.

All of the tax tables and the tax-rate schedules already incorporate the ZBA. If you itemize, therefore, a special calculation is required at the end of the separate form for computing your itemized deductions, Schedule A. After adding all itemized deductions (on line 39 of Schedule A) you must subtract from the total ZBA for your filing status. The remaining amount of deductions is the number to be carried to line 33 of Form 1040 -- not your total deductions.

Medical expenses. As a general rule, medical expenses may be deducted only to the extent that they exceed 3 percent of adjusted gross income. Expenses fordrugs and medicines are further limited: You must first subtract 1 percent of adjusted gross income, then include the balance with other medical costs.

There is one exception.Half of your medical insurance premiums up to a maximum of $150 may be deducted (on line 1 of Schedule A) without regard to the 3 percent limitation; the balance should then be entered on line 5 to be added with other expenses. Medical insurance includes supplementary insurance under Medicare but not basic Medicare itself.

You may count your own medicalexpenses plus those paid by you on behalf of all dependentsclaimed on the return, including a dependent you claim as aresult of a multiple support agreement.

You may also claim medical expenses you paid for a person you would have been permitted to claim as a dependent, except that he or she had taxable income of $1,000 or more or is filing a joint return.

The cost of acupuncture treatments by a qualified practitioner is allowed as a medical expense; also prostheticssuch as false teeth, hearing aids and batteries, glasses and contact lenses; orthepedic shoes, crutches, and similiar aids; purchase or rental of special equipment for the handicapped; and the cost of obtaining and maintaining a guide dog.

The cost of a legal abortion or a procedure for sterilization is deductible, but illegal drugs or any treatment against that is against the law may not be included.

You may deduct the cost of transportation to obtain medical care, including ambulance hire; bus, taxi, train or plane fares; and9 cents a mile for use of your car plus tolls and parking fees.

State and local taxes. Various types of state and local taxes may be deducted on Schedule A.

State and localincome taxes actually paid or withheld from your wages during 1980 -- whether more or less than your final state and local income tax bill for 1980.

(If you received a tax refund in 1980 for previous years, the amount of the refund should be entered as income on line 11 of Form 1040, but only ifyou itemized deductions for the year was paid.)

Personal property taxes paid in 1980, regardless of the year to whichit applied.

Real estate taxes paid in 1980 on your home or other property you own, but not the tax on property held for rental, which goes on Schedule E.

If the financial institution that holds your mortgage pays the real estate taxes, you may deduct only the amount paid on your behalf during1980, not the monthly tax escrow payments you made.

General sales taxes, either according to the amount allowed in the IRS instruction book table or the total amount actually paid if you kept a record.

In addition to the amount authorized by the table, you may claim sales tax paid on a major purchase such as a car, boat or plane; a mobile home or trailer; or materials to build a home if paid directly by you orspecified in the builder's contract.

Not deductible: excise taxes on liquor or cigarettes, utility bills or transportation; hunting or fishing licenses; car tags; traffic fines; or penalties for underpayment of federal or state income tax.

Interest payments. You deduct interest paid on amortgage on your home or other noninvestment property; on apersonal loan; on a life insurance loan if paid in cash, but not if added to the loan; on charge accounts; and intereston late federal or state tax returns.

There is a ceilingon the deductible for interest paid in connection with investments. If you paid in connection with investments. If you paid substantial amounts of interest on investments, see IRS Publication 545.

Prepaid or discounted interest may not be deducted when paid if the loan extends beyond the current tax year. Instead, the interest must be appointed over the life of the loan.

If you do not know how much of each payment is considered interest, then divide the total amountof interest evenly over the scheduled number of payments.

Interest paid on money borrowed to buy tax-exempt bonds orsingle-premium life insurance is not an authorized deduction.

The amount of any "points" points by you in connectionwith purchase of a home normally is considered interest.

But if you sold your home, points you paid to induce a lender to provide financing to the buyer is not interest. (The amount you paid, however, is a selling expense that may be used to reduce taxable profits on the sale.)

On the other hand, a prepayment you as the seller had to give to your mortgage for early repayment of the mortgage is deductible as interest in the year paid.

Charitable contributions. A comprehensive list of the types of religious, charitable and educational organizations that qualify as itemized deductions to be claimed on Schedule A is found in the IRS instruction booklet along with the major contributions that may not be claimed. i

You may deduct both cash contributions and the fair market value of property you gave to qualifying organizations. But there are restrictions. If the information in the IRS booklet is not sufficient to answer your questions, see publication 526, "Charitable Contributions."

Casualty losses. Destruction of or damage to nonbusiness property resulting from a sudden, unexpected or unusual event may providea tax deduction.

Gradual deterioration such as a termiteinfestation does not qualify, nor does protective action such as removing a dead tree before it falls. The event must be sudden in nature, such as hurricane, tornado, flood, fire, theft, vandalism or accident.

Only the unreimbursed loss is deductible. The amount of any recovery from insurance or from an individual found to be at fault must be subtracted from the total loss. In addition, the first $100 or loss from each separate event must be subtracted.

If you couldhave recovered all or part of your loss through insurance coverage but elected not to file a claim, you may not deduct the amount that could have been recovered.

Example: You drive your car into a hydrant and have a $350 loss. Yourcollision coverage has a $200 deductible clause. You choose not to ask for reimbursement of the remaining $150 and instead pay the entire loss yourself. On your tax return you may claim the $200 deductible minues the $100 loss exlusions,but you cannot claim the $150 the insurer would have paid if you had entered a claim.

Employe business deductions. Certain employee business deductions may be taken if they'reincurred in the course of your employment and are not reimbursed by your employer. These include entertainment expenses, professional societies and publications, union dues, small tools and supplies, cost and upkeep of specialized uniforms not suitable for wear away from work and protective clothing like hard hats and safety shoes.

Expenses related to job-hunting may be deducted even if the search was unsuccessful. You may not claim the cost of certifying examiniation or a license to practice, but these may be included as business expenses on Schedule C if you were already in business.

Military people on active duty may not deduct the cost of regular uniforms, but may claim the cost of items such as insignia and ribbons and of work clothing that may not be wornoff duty. Reservists and guardsmen not on active duty may deduct the unreimbursed cost of all uniforms.

Unreimbursed education expenses (other than for transportation, which should be claimed as an adjustment to income) are deductible when related to your job. bThe education must have been taken to meet the requirements of your employer or of the law tokeep your present job, or to maintain or improve your skills in that job.

Education to qualify for a job initially, to train for a new profession or for your own pleasure does not qualify.

Home offices. Last summer, the IRS announcedits intent to tighten the rules governing expenses connected with using part of a home for business purposes.

However, on Oct. 1, Congress put at least a temporary hold on any change. So this deduction must meet these two tests: The area must be used exclusively for business purposes, and it must be either your principal place of business or regularly used by clients or customers.

If you are an employee rather than self-employed, there is a third requirement: Use of space in your home must be for the convenience of the employer, not for your own convenience.

This deduction may not be used to shelter other income from tax. The total amount of the deduction for expenses (after subtracting the allocable portion of property taxes and mortgage interest, if you own the home) may not exceed net income from the business for which the home office was used.

Other deductions. In general, you may claim any personal expense related to the production of taxable income. For example, include the cost of a safety deposit box if it held stocks or corporate bonds orthe deed to rental property, but not if it contained only personal papers or tax-free bonds.

Fees for investment advisory services and subscriptions to investments journals maybe deducted even if you lost money on your investments. Include the cost of tax books and a fee paid for preparation of your personal income tax.

You may also deduct fees paidto your bank or broker for the collection of taxable interest on notes or coupon bonds, but do not deduct brokerage commissions, which should be added to the cost of securities when calculating capital gain or loss.

Legal fees associated with the production of taxable income, such as attempts tocollect alimoney or back wages, are deductible. Legal costs for a divorce proceeding are not deductible, but a separately identified fee for investments or tax counseling in connection with the divorce is a valid deduction. Tax Computations

If you file your return for 1980 on Form 1040A (the short form), the IRS will figure your tax for you if youwish. Simply complete the identifying information at the top of the form and enter the information called for on lines1 through 12a.

Attach copy B of all W-2s and sign the 1040A at the bottom. The IRS then will calculate your income tax liability, including -- if you are elibible -- the earned income credit.

Without further action on your part, theIRS then will mail you a check for any refund. If you owe additional tax, you will be sent a bill.

If you use Form 1040 (the long form), the IRS also will compute your taxif:

Your adusted gross income was $40,000 or less for married taxpayers filing jointly or for a qualifying widow or widower, or not over $20,000 for all others.

Taxable income consisted only of wages, salary, tips dividends, interests, and pension or annuity payments.

You use the zero bracket amount rather than itemizing deductions.

You do not use income averaging.

You do not claim special tax treatment for income earned abroad.

(Note: If you file a joint return and ask the IRS to figure the tax, show the income of each spouse separately. On Form 1040A enter the separatefigures, identifying them as "H" for husband and "W" for wife, between lines 7 and 8; on the 1040 use the space under the words "Adjustments to Income.")

If you prefer to compute your own tax and are filing Form 1040A, use the tax table for your filing status and the column of that table that matches the number of exemptions you claim.

You also should use the table with Form 1040 if your taxable income and yournumber of exemptions do not exceed the numbers shown in thetable.

The tax tables already take into account your personal and dependent exemptions and the zero bracket amount.Do not subtract these from your taxable income before goingto the table to find your tax.

If you itemize deductions, you still can use the tables because an offset for thezero bracket amount is included at the end of your ScheduleA computations, so you end up with a figure for deductions in excess of the ZBA -- the amount on line 41 of Schedule A -- to be claimed on line 33 of the Form 1040.

If you are not eligible to use the tables, you must use Part I of the Tax Computation Schedule (TC) to calculate your tax liability. Figure the amount of the tax from the appropriate tax-rate schedule for your filing status.

Deduct, on line 2 of Schedule TC, the dollar amount of your personal and dependent exemptions, at $1,000 each. Since the zero bracket amount has been built into the tax rate schedules, if you itemize you enter only excess deductions from Schedule A.

There are two special situations to watch for:

First, the maximum tax on earned income for 1980 cannot exceed 50 percent regardless of the amount of those earnings.

"Earned income" includes all income from personal services -- specifically including wages and salary, tips and self-employment income, retirement pay, employment-related pensions and annuities and various forms of deferred compensation.

Income from the investment of capital (rents and royalties, interest and dividends, some capital gains) is not protected by this ceiling, and the tax rate on this kind of income can go to amaximum, of 70 percent.

If the normal method of computing your tax imposed a rate greater than 50 percent on any portion of your income tht is "earned" use Form 4726 to calculate the lower maximum tax.

There is also a "minimum tax," imposed on selected forms of income known as tax preference items that otherwise would escape taxation. The idea behindthe minimum tax was to keep the wealthy from sheltering so much of their income with special tax avoidance methods thatthey paid no or very little tax on large amounts of income.

Tax perference income includes stock options, certain types of accelerated depreciation and depletion, the excluded portion of net long-term capital gains (but not on sale of your residence) and itemized deductions (excluding medical expenses and casualty losses) in excess of 60 percent of adjusted gross income. e

Depending on the amount and source of tax preference items and the amount of your income, you may have to use either Form 4625 or Form 6251. See instructions with these forms for details. Tax Credits

After you've determine your initial tax liability, you still get another shot at reducing your tax bill with various tax credits.

Political contributions. You may claim as a tax credit halfof your total qualifying political contributions. The ceiling on this credit is $100 on a joint return, $50 on all others.

To qualify, a contribution must have been made to a candidate for elective public office or to a newsletter fundor political action committee of a candidate or an elected public official.

(The dollar checkoff on the tax return for the Presidential Election Campaign is not a political contribution.)

Tax credit for the elderly. You may qualify for the tax credit for the elderly if you were 65 or older and had taxable income of any kind during 1980. eThe credit iscalculated on Schedule R.

Start with the initial maximumallowance for your filing status, as shown on the schedule. From this starting amount you must deduct certain kinds ofpension or annuity payments not included in gross income (principally Social Security or Railroad Retirement Act benefits).

Then there is a 50 percent offset for adjusted grossincome above specified amounts (also shown on Schedule R).The tax credit is 15 percent of the amount remaining after these two deductions.

There is a special tax credit for taxpayers under 65 who are retired under a federal, state or local government retirement system. This special credit is claimed on Schedule RP.

The initial maximum amount of government retirement pay eligible for the credit is the same as for the tax credit for the elderly. And a similar reduction must be made for Social Security and Railroad Retirement benefits.

But you then must reduce the base amount dollar-for-dollar by all earned (not adjusted gross income) in excess of considerably lower minimums than apply on Schedule R.

Child and dependent care. You can take credit for 20 percent of expenses for care of a child under 15 or for a spouse or dependent who was unable to care for himself or herself.

The care must have been provided to permit the taxpayer (both spouses in the case of a married couple) to be employed for pay. (In some circumstances the credit is availableto a couple even if only one spouse was employed, as explained below.)

There is no income ceiling for this credit; ifyou otherwise qualify, you may claim the tax credit regardless of the amount of your income.

The ceiling on eligibleexpenses is $2,000 for care of one qualifying individual or$4,000 for two or more. At 20 percent of these expenses, the maximum credit is $400 or $800 for the full year, and $33or $67 a month for a shorter time.

Regardless of your marital status , you must have maintained a home of your own during 1980, and the qualifying individual for whose careyou claim the credit must have been a member of your household.

The credit is allowed for care in the home paid for during 1980. Care outside the home also may qualify, but only for a dependent child under 15.

If you are married , normally you must file a joint return to claim the credit. However, you may file a separate return and still be eligible if you meet all of these requirements:

You were legally separated or living apart from your husband or wife.

You maintained a home and paid more than half the cost ofmaintaining that home in 1980.

It was the principal homeof the qualifying individual for more than half the year.

Your spouse was not a member of the household during at least the last six months of the year.

If you are single , the amount of expenses you may take into account may notexceed the amount of your earned income for the year, less any disability exclusion claimed.

In the case of married taxpayers filing jointly , the amount of expenses claimed may not be greater than the earned income of whichever spouse earned less.

However, if one spouse was incapable of self-care or was a full-time student, for the purpose of this ceiling you may consider that he or she was "employed" with "earned income" of $166 a month if you are claiming care of one dependent, or $333 a month if you have two or more.

You can apply this exception only one spouse in any month.Thus at least one spouse must have been employed with earned income equal to or greater than whichever of these amountsis applicable.

In addition, this assumption of earned income applies only for those months in which the spouse was either incapable of self-care or was a full-time student.

Investment credit. If you are self-employed, you may claim a credit for your investment in certain depreciable personalproperty bought for use in your business or profession.

The full credit is 10 percent of the cost (or other tax basis) of new or used property acquired in 1980 which has an estimated useful life of at least seven years. For assets witha useful life of between three and seven years, a partial credit may be claimed.

If you claim an investment credit, the amount of the credit is disregarded when establishing the basis of the property for depreciation purposes or for determining gain or loss on a later date.

Because of the complexity of the rules for claiming the investment credit, if you think you qualify you should review carefully. Form 3468 and the accompanying instructions or consult the IRS or your tax adviser.

Energy credits. The tax credit for energy-related expenses was initiated in 1978 and is effective through calendar year 1985.

A $300 ceiling for the energy conservation credit applies to the entire period.

The Windfall Profits Tax Act of 1980 changed the ceiling on a separately computed credit for using "renewable" energy sources, such as solar or wind power. The maximum credit on solar, wind and geothermal energy installations stays unchanged at $2,200 for expenses through Dec. 31, 1979. But effective Jan.1, 1980, (and through the 1985 cutoff) the credit has been increased to 40 percent of expenditures up to $10,000, for amaximum credit of $4,000.

This is not an additional allowance. The new ceiling must be reduced by the total of all credits taken in 1978 and 1979. n

Some general rules apply to both the conservation credit and the renewable energy sources credit:

The equipment or modification must be a new installation; that is, you must be the first person to use it.

It must be a part of your principal residence, located in the U.S., but that residence can be a condominium or cooperative or even a rented apartment or house.

The residence in which the installation is made must have been substantially built by April 19, 1977; homes built after that date donot qualify.

Earned income credit. The earned income credit is designed to help working lower-income people with children; you must be either married and filing a joint returnor the head of a household.

And you must have had some form of "earned income" during 1980 to get the credit. In addition to wages and salary, this can include tips as well asearnings from self-employment.

To qualify, both your netearned income and your adjusted gross income must be less than $10,000. If you are married, this ceiling applies to your combined totals.

If you qualify, complete the earned income credit worksheet on page 14 of the Form 1040 instruction booklet or page 12 of the 1040A booklet. Income Averaging

If your income in 1980 was substantially higher than it had been in previous years, you may be able to reduce yourtax liability by using the income-averaging method of computing the tax.

There are two requirements to qualify for income-averaging:

You must have been a U.S. citizen or resident during the five-year period from 1976 through 1980.

You must have furnished at least half your own support during each of the preceding four years. (There are some exceptions to this test; these are explained in the instructions accompanying Schedule G, the income-averaging form.)

You mayuse income-averaging for every year you qualify.

If you use income-averaging, you may not apply the 50 percent tax ceiling on earned income. So if your income puts you in a tax bracket higher than 50 percent, you should compute the taxboth ways -- with income-averaging, then without averaging but applying the maximum tax limitation -- to see which produces the lower tax.

The procedure for income-averaging isn't as complicated as it appears when you first look at Schedule G. If you're able to prepare the rest of your return yourself, you should be able to handle Schedule G without difficulty by following the step-by-step instructions.

IRS Publication 506 provides helpful information about income-averaging, including details of some restrictions that might complicate the procedure, particularly if your marital status changed during the five-year period.

To complete ScheduleG, you must have copies of your federal income tax returns for the years 1976 through 1979. If you can't find them, copies of returns for prior years may be obtained for a small fee from the Internal Revenue Service Center where they originally were filed. '81 Estimated Tax

A taxpayer who is self-employed or who expects to have substantial income during 1981 that is not subject to withholding (income from interest or dividends, for example) must make special arrangements to comply with federal pay-as-you-go rules.

If in addition to the income you don't have taxes withheld on, you receive wages or retirement pay that is subject to withholding,you may file a new Form W-4 with your employer claiming a lesser number of allowances than authorized.

If you get down to zero allowances and want still more money withheld, you may specify an additional number of dollars to be withheldeach payday, if your employer agrees.

In the event that you do not have income subject to withholding, or if you cannot arrange to have enough tax withheld from your pay, you must file a declaration of estimated tax for 1981 by April 15, 1981, using Form 1040-ES.

Send the IRS one-fourth of the total estimated tax deficiency when you send in the first estimation. Then make additional payments of one-fourth each by June 15 and September 15 of this year and Jan. 15, 1982.

The IRS doesn't send quarterly reminders. You're responsible for remembering to send the payments by the due dates.

Each stub of the payment form has an area for amending your original estimate. If your estimate of eventual tax liability changes during the year, enter the new estimate on the next stub and adjust the remaining payments to correspondto the new balance due.

If you're not liable for estimated tax on April 15 but determine later that you have become liable, file an initial 1040-ES on the next regular payment date, dividing the total amount due into the remaining number of equal payments.

You should file an estimate if you expect your final tax liability to exceed withheld amounts by$100 or more. However, there will be no penalty assessed unless the dificiency is greater than 20 percent of the totaltax.

If you goofed last year and the balance due on your1980 tax is $100 or more and also more than 20 percent of total liability, you should complete Form 2210 to calculate any penalty due on the deficiency. Include any penalty due with your tax payment.

However, there are several exceptions that make it possible to avoid the penalty. Form 2210 explains these in detail. If you meet any one of the criteria, attach completed Form 2210 to your return to justify the tax shortfall and avoid any penalty. Preparation Tips

The most important thing you can do to simplify the annual taxpreparation chore is to keep good records all year.

A complicated record-keeping system is not necessary. Unless you have a special problem, you need only keep a file folder or large envelope in which you put tax-related information during the year.

This includes bills, receipts and canceledchecks for any transaction with a tax impact, such as charitable contributions, state and local taxes, interest and medical expenses.

If you don't have a supporting document for a transaction, or if its purpose is not self-evident, write an explanatory memo. Don't trust your memory; by tax timeyou may no longer remember why you gave good old what's-his-name a check for $50 last March.

If you claim business-related expenses, you should have a diary or log of your daily travel (both mileage and expenses), plus notes of the places, people and business purposes to support claims for entertainment.

In addition, you should have a separate receiptfor each additional item of $25 or more. If properly annotated, a credit car charge slip generally will meet this requirement.

When you are ready to start working on your return, separate the records you have accumulated into the various categories: W2s, 1099 forms (such as sent by banks or savings and loans to tell you how much interest you received during the year or from anybody paying you dividends), the different kinds of Schedule A deductions, energy expenditures, child care costs, etc.

After you have everything sorted out, you're ready to review the forms and instructions and start on the return. And even if you use a commercial preparer, the better shape your records are in and the less time the preparer has to spend sifting through your data, the better service you should get and the lower the fee should be.

BITE THE BULLET: Don't wait until April 14 to start workingon your return. If you get to it now, you'll have more time to look for missing papers, sort out half-forgotten transactions and review the completed return.

If you run into aproblem, it's easier now, before the last-minute rush by all the others, to get help, either from IRS or from a commercial tax preparer.

If you own additional tax, you can holdyour return until April 15. Although Uncle Sam would like to get his hands on your money as soon as possible, it's perfectly legal to delay until the due date.

On the other hand, if you're due a refund, send the return off as soon as possible. The IRS doesn't pay any interest on a normal refund, and if you wait until mid-April there is likely to be a longer delay before you get your check because of the heavy workload of last-minute returns.

ROUND THE DOLLARS: You can simplify your work and reduce the probability of error by rounding all figures to the nearest dollar. Drop all amounts under 50 cents, and raise amounts between 50 and 99 cents to the next dollar.

TABLE MANNERS: Remember that the tax tables already allow for personal and dependent exemptions and the zero bracket amount, and the tax schedules have the ZBA built in.

Neither the tables nor the schedules providefor any of the various tax credits. You must enter these on the return and subtract them from your tax liability yourself.

CHECK YOUR WORK: When you're done check your work or, better yet, have someone else check it for you. In particular, review all the arithmetic calculations, be sure you have used the correct tax table or schedule and make certain you have carried the right numbers from each supporting schedule to the right line on the 1040.

WRITE YOUR CHECK: Finally, sign the return, attach all W-2s as well as payment forany balance due and put the whole package in the mail before the due date. Military Personnel

If you are a legal resident of Maryland, Virginia or the District of Columbia, you don't lose that status when living elsewhere because of duty assignment.

You are subject to income tax and are required to file a resident return in your state of domicile regardless of where you are stationed.

Conversely, if you are a legal resident of another state, you are not subject toincome tax in any of the three local jurisdictions solely because you are assigned to military duty there.

So unlessyou are a legal resident of Maryland or Virginia, you are not required to report or pay taxes there on military income. But you are liable for reporting, as a nonresident, incomeearned from other sources within the state (a moonlighting civilian job, for example).

The District tax laws are more liberal. If you are a military person living in D.C. but claiming legal residence elsewhere, you need not report or pay tax on any income there, regardless of source.

The husband or wife of a member of the armed forces is considered aresident or nonresident according to the general rules in each state without regard to the military status of the spouse. Federal Workers

Because of the special nature of therelationship between the District of Columbia and the federal government, D.C. tax regulations contain special provisions not found in other states.

These special provisions exempt people in three categories from income taxes in the District.

An elected officer of the U.S. government.

An officer of the Executive Branch of the U.S. Government who was appointed to that office by the president subject to confirmation by the Senate, and whose appointment may be terminated at the pleasure of the president.

The exemption does not apply to a member of this group who was a legal resident of the District on the last day of the tax year.

A personon the personal staff (not a committee staff) of an electedmember of the legislative branch if a bona fide resident ofthe same state as that elected member.

Those in this last category are required to file an information return by April 15 on form D-100. Others who are exempt from D.C. tax under these provisions may file Form D-40B to get a refund of any D.C. tax withheld from pay. Tax Tips Census Bureau Data

Missing since 1975 tax returns, a series of questionsrelating to the physical location of your residence pops upagain this year.

Inclusion of these questions on the taxforms was requested by the Bureau of the Census. The information is used by the bureau to develop statistically valid estimates of population distribution and per-capita income.

These estimates are used mainly to determine the distribution of revenue-sharing funds to state and local governments. Dependent Care Option

The cost of nursing care for a disabled dependent may be claimed either as a tax credit or a medical deduction. You cannot claim both for the same expenses, but you may take a qualified deduction wherever it gives you the larger tax benefit.

If your are using the zero bracket amount, then of course you should take the tax credit. But if you itemize and already have enough medical expenses to exceed the 3 percent exclusion, then the choice depends on your tax bracket.

The rule to remember is that a deduction on Schedule A reduces taxable income, while a credit reduces tax liability.

If your decide to itemize, include the qualifying costs along with your other medical expenses. If you elect to take the credit, attach Form 2441 to your return to document the credit.

If you take the credit, any qualifying expenses in excess of the $2,000/$4,000 limit may be added to medical expenses on Schedule A. Charitable Contribution Idea

Within rather generous limits, contributions to qualified charitable, religious or education organizations may be subtracted from income, if you itemize deductions on Schedule A.

You can enhance the value of thatdeduction by giving property -- stocks, bonds, or similar assets -- which have appreciated in value. You generally will get a deduction for the fair market price without having to report the capital gain.

But if the property has depreciated in value, sell it and donate the cash. You then will be able to claim a capital loss which wouldn't be available if you contributed the property directly. Presidential Campaign Fund

The 1980 election is scarcely over, but you can start right now to help accumulate the money necessary forpublic financing of the 1984 election campaign.

Each taxpayer may earmark $1 of his tax to help provide financing for that future campaign. Payments are assigned to a general fund, to be made available to qualifying candidates for the offices of president and vice president.

This is not an additional tax on your income. It requires no payment of anykind on your part, nor will it reduce any refund you have coming. You simply are directing the government to set aside$1 of your regular tax payment for the campaign fund.

Check the "yes" or "no" block directly under your name and address. On a joint return, each spouse has an independent choice. Just When You Think You're Done . . . Doing the Local Tax Returns

So you've finished your federal tax return.You breathe a sigh of relief (maybe tinged with anguish andpain) and turn to the tax forms so thoughtfully provided byyour state or District government.

But wait! Don't put that federal return away just yet; you'll need it for reference. Most of the data required on the state tax returns forthe District of Columbia, Maryland and Virginia is derived from the federal return.

And sometimes the additional research you do for the state return will trigger a change on the federal return. So complete the federal return first, then use it as a basis for working on the state return.

Theaccompanying tables provide the basic filing instructions for each of the three local jurisdictions. Note that Maryland filing requirements are the same as federal; but those in the District and Virginia have lower dollar minimums than the IRS.

On a District or Virginia return, use the peel-offlabel from the instruction booklet on your return, making any necessary corrections. Use the Maryland label only if all the information is correct.

All three states provide a tax benefit for a married couple (living together) when eachspouse has separate income. Whether to file a joint returnor combined separate returns depends on the amount of income attributable individually to each spouse.

The rules in each state are different, so check the instructions if this situation applies to you. All three local states require that you attach to your return a copy of the "foreign" tax return to support the credit. a

These are the general rules. What follows is a state-by-state look at some of the specific instructions, with particular attention paid to those areas where the local rules differ from federal requirements. District of Columbia

Filing status. You have a choiceof five different filing categories. The first four are essentially the same as their counterparts on the federal return: single, head of family, married filing jointly, and married filing separately.

The fifth filing category permits a married couple to file separate returns on the same form.This category should be used if each spouse had gross income of more than $750 in 1980.

If you file using this status, enter the data pertaining to the husband in Column A, andthat of the wife in Column B. All other filers should use Column B only.

Exemptions. Personal exemptions are the same as on the federal return:

one per taxpayer (and spouse on a joint return) plus one for age 65+, plus one for legal blindness. Exception: If you file as head of family, you get an extra personal exemption, which is not available onthe federal return.

One exemption is allowed for each dependent claimed on your federal return. (On a combined separate return you may allocate the dependents to husband and wife any way you want.)

The District allowance is $750 for each exemption for a full year; or $62.50 per month on a part-year return.

Income. The District requires that youmodify federal income to fit D.C. requirements, then enter D.C. income by categories on page 2 of Form D-40. Here are the principal modifications:

A reduction of salary made, by agreement with your employer, to purchase a tax-sheltered annuity may not be excluded from gross wages for D.C. If not included in wages on your W-2, you must add it.

There are major differences between federal and D.C. handling of income from a pension to which you contributed. You should report as income each year 3 percent of the total amount you had paid until you have recovered, tax-free, an amount equal to your contribution. From then one the entire amount received is taxable as ordinary income.

The federal dividend exclusion is not authorized; you must show the gross amount of taxable dividends received. But exclude interest receivedon obligations of the U.S. government, any federal agency or any state or municipality. And the District does not tax interest earned on life insurance policy dividends left on deposit with the insurance company.

A state tax refund shown as income on the federal return should be excluded.

Anddeduct any unemployment compensation you included as incomeon the federal return; such payments are not taxable by theDistrict.

Adjustments to Income. The District allowsthe same federal adjustment for employe business expenses, alimony payments and the disability income exclusion. But no adjustment is authorized for payments to either an IRA or Keogh retirement plan.

Moving expenses may be claimed only as an itemized deduction, not as an adjustment. And you may only claim expenses equal to the amount of any reimbursement from your employer which is included in income.

Deductions. The standard deduction is 10 percent of adjust gross income (line 6 of Form D-40), up to a maximum of $1,000 ($500 for a married person filing separately). But you may itemize on your D.C. return regardless of whether you itemized or used the ZBA on the federal return.

The deductions for medical expenses and interest may be transferred withoutchange from the federal return. (Caution: When computing the deduction for medical expense, keep in mind that adjusted gross income for D.C. purposes may be different than onthe federal return.)

The deduction for taxes is similar to the federal deduction, except that you must eliminate any deduction taken for state or local income taxes paid.

Thededuction for charitable contributions is limited to qualified organizations which carry on a substantial part of theiractivities in the District. The total deduction for contributions cannot exceed 15 percent of D.C. adjusted gross income.

Moving expenses may be claimed as a miscellaneous deduction, but -- as noted earlier -- not more than the amount of any reimbursement from your employer which is included inreported income.

Tax credits. The District provides for a tax credit for child or dependent care similar to thatauthorized on the federal return. While the allowable expenses are essentially the same, the D.C. credit is limited to6 percent of those expenses, not the 20 percent permitted by federal rules.

Property tax credit. Residents of the District with household gross income of $20,000 or less during 1980 may be eligible for a property tax credit. The requirements to qualify are on page 7 of the instruction booklet.

The credit is claimed using Schedule H. If you file a D.C. income tax return, take the credit on line 19 of FormD-40, and attach Schedule H to the return.

You can claimthe property tax credit even if you have no tax liability and do not file a D.C. return. File Schedule H by itself; ifyou qualify, you will receive a cash payment for the amountof the credit. Maryland

Filing status. Maryland offers five filing categories. This is the same number as on the federal return, but there are differences. Four of the categories are defined in the same way; single, married filing jointly, married filing separately and qualifying widow or widower.

But Maryland does not offer a special status for the head of a household. The fifth category for Marylandtaxpayers -- married filing combined separate returns -- isfor a married couple who filed a joint federal return and wish to file separate Maryland returns or if separate federalreturns were filed.

You should use this latter status ifboth husband and wife had Maryland taxable income. Figure your tax both ways (joint and combined separate), then use the method that provides the lower total tax.

If you file combined separate returns, use Form 502 and enter the husband's data in Column A, the wife's in Column B. All other filers use Column B only.

Exemptions. Maryland residentsclaim $800 per exemption, or $66.67 a month for less than afull year. You are entitled to one exemption for each personal and dependent exemption claimed on the federal return.

In addition, on the Maryland return you get an additionalexemption for each dependent who has reached the age of 65. But the additional exemption for blindness is only allowedfor the taxpayer and spouse.

Income. Using Schedule C of Form 502, add to federal income any interest received on obligations of state and local governments other than Maryland. And add back in the dividend exclusion allowed on thefederal return. Other miscellaneous additions are listed on page 19 of the instruction booklet.

Then on Schedule D subtract from federal income interest on U.S. obligations and any state tax refund reported as income on your federal return.

Also exclude -- to the extent it was included in federal income -- any capital gain realized on the sale of bonds issued by the State of Maryland or any of its political subdivisions.

Maryland allows the exclusion of up to $6,400 of pension income if you were 65 or older or totally disabled on Dec. 31, 1981 -- but reduced by any Social Security or Railroad Retirement benefits received.

Then you may subtract up to $200 of taxable interest income ($400 for a married couple); and 20 cents a mile for the use of your car in volunteer work for certain charitable purposes, if unreimbursed. (Use Form 502-V to show the calculation.)

In addition, the Maryland tax benefit for dependent care expenses is an adjustment to income rather than a tax credit. Subtract from income an amount equal to five times the amount of the federal tax credit taken.

You also may reduce your income by an amount equal to one-half of all political contributions, up to a maximum of $50 ($100 on a joint return).

Adjustments to income. On your Maryland tax return you may claim all of the adjustments taken on your federal tax return and to the same extent.

Deductions. The standard deduction is equal to 13 percent of Maryland adjusted gross income (line 5 of Form 502), up to a ceiling of $1,500 per taxpayer ($3,000 on a joint return).

If you use the standard deduction on a combined separate return, it must be computed on the income of each spouse separately.

You may itemize even if you use the ZBA on your federal return. But in thatsituation total itemized deductions may not exceed the federal ZBA amount.

Itemized deductions on the Maryland return are the same as on the federal return with two exceptions. You must eliminate the deduction for state and local income taxes. And qualifying artists may include as a deduction the value of their own works donated to certain Maryland museums. (See Form 502-AC for details.)

Tax computation. After computing the Maryland tax from either the tax table or tax rate schedule, you must add the local "piggyback" assessment to determine your total tax liability.

The local rate is 50 percent of the state tax in every county (and Baltimore City) except for the following: Charles and Queen Anne's counties, 40 percent; Talbot, 35 percent; and Calvert and Worcester, 20 percent.

Property tax credit. Maryland does not offer a property tax credit as a part of the income tax system. But for your convenience an application for the Maryland homeowner's property tax credit (Form HTC-60) is included in the instruction booklet.

Do not attach FormHTC-60 to your income tax return, and do not forward it in the same envelope with the tax return. Two separate envelopes are included in the instruction booklet -- one for your income tax return, the other for mailing the homeowner's tax credit application.

There is a Maryland personal propertycredit available on the income tax return, but it applies only to state personal property tax paid on property used in a trade or business.

If you are eligible for this credit,use Maryland Form 502-CR; and include the amount of the taxfor which credit is claimed in Schedule C of Form 502, as an addition to federal adjusted gross income. Virginia

Filing status. Virginia taxpayers have a choice of four filing categories: single, married filing jointly, married filing separate returns, or married filing separately on a combined form.

A Virginia joint return is only authorized ifyou filed a joint federal return or if you were not required to file a federal return.

You may use the "combined separate" category regardless of whether you filed your federalreturn jointly or separately.

Combined separate filing is usually the better method if both spouses had Virginia taxable income. But try both joint and combined separate returns to see which gives you the lower total tax.

If you file using the combined separate status, use Column A for the wife's calculations, Column B for the husband. All other filers should use Column B only.

Exemptions. The number of personal and dependent exemptions -- each worth $600 a year -- is the same as on the federal return. But in additionto the normal extra exemption for age, there is a a further$400 allowance for each taxpayer (but not dependent) who was 65 or older on Dec. 31, 1980.

Income. There are very few changes required to adjust federal income for Virginiatax purposes. You need only add to federal income any interest received on bonds or other obligations issued by other states.

Then subtract interest received on federal obligations; any state tax refund reported as income on your federal return; and the extra $400 allowance for having reached the age of 65.

If you received retirement income from the State of Virginia or its agencies or from any Virginia county, city or other subdivision, the entire amount of such income is excludable.

Adjustments to income. The Stae of Virginia allows all of the same adjustments you had claimed on your federal return, without modification. In fact, the starting point on the Virginia return is federal adjusted gross income (after adjustments).

Deductions. The standard deduction is equal to 15 percent of adjusted gross income (line 5 of Form 760), not to exceed $2,000 -- but at least$1,300 regardless of income. (For a married person filing separtely, the maximum is $1,000 and the minimum $650.)

You may itemize only if you itemized on your federal return; and if your itemized deductions on the federal return exceeded the ZBA, you must itemize on your Virginia return.

Virginia deductions are the same as federal except for the exclusion of any deduction taken on the federal return for state or local income taxes paid.

Since you only transfer a single figure for deductions from the federal to the state return, be sure to use the total from line 39 of federal Schedule A rather than only the "excess" (after subtracting the ZBA) from line 41.

Child care. Virginia authorizes a separate deduction for child and dependent care -- available even if you take the standard deduction and do not itemize.

Since this is a deduction and not a tax credit, you should multiply the federal credit by five to get the amount of theVirginia deduction. Use Part V of Form 760 and attach a copy of federal Form 2441 to your Virginia return.

Tax credit for the elderly. A Virginia resident may qualify for a special tax credit if he was at least 62 years old on Dec.31, 1980; had adjusted gross income of less than $15,432; and had less than a specified amount of Social Security or Railroad Retirement Act benefits.

The credit base for each age group and the instructions for claiming the credit are found in Part VII of Form 760.