The IRS will figure the tax liability for many of you, if you wish. All 1040A and 1040EZ users may request this service; if you use Form 1040, you must meet certain conditions to be eligible.
On Form 1040EZ, you need only attach the mailing label or print your name, address and Social Security number at the top of the form, then enter the amounts for lines 1 through 8. Sign and date the return, attach the required W-2s and mail the form by April 15. The IRS will compute your tax liability and send you either a refund check or a bill for any balance due.
(By the time you have gotten through line 8, however, calculating your own tax is no big deal. All that's left is to look up your tax in the tax table, enter the amount on line 9, then compare that amount with the number on line 8 -- the amount of tax withheld -- to come up with either a refund due you or a balance due the IRS.)
If you're using Form 1040A, the help from the IRS may turn out to be a little more substantial. In addition to determining your tax liability, the IRS will also figure the earned income credit for you, if you qualify.
But you must still provide the IRS with all the basic data. After completing the identification information at the top of the form, you must check off your filing status, enter your personal exemptions and list your dependents -- and include the Social Security number if the dependent is over 4 years old.
Next, enter all the appropriate numbers for lines 6 through 17. If either taxable interest or dividends exceeds $400, show the individual items on Parts II or III of Schedule 1. You are also required to show, on line 7b, the total of any tax-exempt interest received -- but don't include that amount when you add up your total income.
If you're under age 14 and have more than $1,000 of investment income, you must check the box just above line 18. All taxpayers skip line 18 itself. If you are eligible, though, for the credit for child or dependent care, you must complete Part I of Schedule 1, then enter the amount of the credit on line 19.
Finally, enter on line 21a the amount of income tax withheld from your pay, usually the Box 9 totals from all your W-2s.
Sign and date the 1040A at the bottom of page 2, attach all your W-2s and Schedule 1 (if used), and mail the whole package off to the IRS office shown in your instruction booklet.
The IRS will complete the tax computations for you on Form 1040 if you meet the conditions specified in the instruction booklet. But if you have more than $50,000 adjusted gross income, want to itemize deductions or don't meet all the other requirements, you'll have to calculate your own tax liability.
Attach the name and address label at the top of the return, or print the information called for, including Social Security number(s), then complete the filing status and dependent data through line 6e. Enter the appropriate amounts where applicable for lines 7 through 36 and 40 through 61 -- but don't enter numbers on any of the "total" lines. You must also complete (and attach) any form or schedule called for by any of the lines for which you entered an amount.
In addition to the necessary calculations, the IRS will compute the earned income credit for you if you qualify -- but you must print "EIC" on line 56. Similarly, if you believe you qualify for the credit for the elderly or disabled, print "CFE" on line 41; then enter the identifying data, check the box for your filing status and age and fill in lines 11 and 13 (if applicable) on Schedule R, and attach it to your return.
If you request IRS computation on a joint return, show the individual income of each spouse in the margin to the left of line 17 of Form 1040A or in the space under "Adjustments to Income" on Form 1040. Identify the husband's income by "H," the wife's by "W."
Figuring Your Own Tax You may compute your own tax on any of the three filing forms. Use the tax tables if your taxable income is under $50,000, the tax rate schedules if income exceeds $49,999. Be sure to use the table column or the schedule appropriate to your filing status.
Whether you use the tax table or the rate schedule, and regardless of which of the three tax forms you use, subtract the total dollar value of your personal exemptions and exemptions for dependents. Each exemption is worth $1,900 for 1987, up substantially from last year's $1,080. But remember there is no extra personal exemption for either age or blindness. And because the zero bracket amount has been replaced by the standard deduction, you are once again required to subtract the appropriate standard deduction (or total itemized deductions on Form 1040, if you go that route) to arrive at taxable income. It is not automatically accounted for in the tax tables or schedules.
An addition to the standard deduction is authorized if you are 65 or older or blind, as explained above in the section on exemptions. Different treatment is also required if you can be claimed as a dependent on someone else's return; a special table is provided in the instruction booklet if you fall in that group.
Income Averaging This special tax technique used to be provided in an attempt to level the tax treatment of someone whose annual income fluctuated wildly -- a writer, for example, whose book hit the best-seller list after several years of laboring with no income. If your income was substantially higher in one year than in the preceding years, the tax could be computed as if it had been received over a period of several years. But the 1986 tax law eliminated ordinary income averaging.
Another form of income averaging continues to be available, however, for a lump-sum distribution from a qualified pension or retirement plan. But the effectiveness of this tax break has been reduced by changing the averaging period from 10 years to five.
Older taxpayers have a choice. If you were at least 60 years old on Jan. 1, 1986, you may use either the new five-year method, using current year tax rates, or the old 10-year method in conjunction with the higher tax rates of 1986. If you received a qualifying lump sum distribution in 1987 and meet the age stipulation, try both methods to see which gives you the better tax break. Use Form 4972 for either method.