Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, April 16, 1990 TAG: 9004140071
SECTION: BUSINESS PAGE: A7 EDITION: METRO
SOURCE: MAG POFF BUSINESS WRITER
DATELINE: LENGTH: Medium
Before you stow all your records and calculations for another year, you can do yourself a financial favor.
You can take a quick reading about where you stand on your 1990 taxes. Then you can plan measures to control this year's tax liability.
Merrill Lynch, the brokerage house, has published a brochure on tax saving for 1990.
It contains a worksheet for calculating this year's tax liability, but you can do the same thing on lined paper by following your 1989 tax form.
To begin with, Merrill Lynch said, 1990 tax brackets have been adjusted to offset inflation. [See accompanying chart.]
The beginning and end of each bracket have been shifted upward about 4.7 percent so that more income is taxed at a lower rate.
The bad news is that the 33 percent bracket covers a higher level of income. That 5 percent surcharge recovers the benefits of the lowest (15 percent) bracket.
The first step is to add up your estimated 1990 income (or losses) according to the categories shown in the 1989 tax return.
That includes money from wages, business, interest, dividends, pensions, rentals, taxable Social Security and the like.
Anyone who claims net passive losses in this category will take another hit this year. Only 10 percent of those losses can be deducted from ordinary income.
The second step is to add up the adjustments such as alimony payments and tax-deferred retirement plans.
Merrill Lynch said those who contribute to 401(k) and SEP plans can set aside up to $7,979 this year. That's higher than in 1989.
Subtract the adjustments from total income and you have your adjusted gross income for 1990.
Then you itemize your deductions following the categories shown on the 1989 return.
There's only one major change in this section. You can deduct only 10 percent of your consumer interest expense or excess investment interest expense.
If you take the standard deductions, Merrill Lynch gave the following values for 1990:
Married filing jointly at $5,450, married filing separately at $2,725, single at $3,250, head of household at $4,750.
Those who are 65 or blind get another deduction equal to $650 each for married individuals and $800 for singles.
Total deductions are subtracted from adjusted gross income.
You also subtract your personal exemptions. That figure is up this year to $2,050.
That gives you your taxable income.
After applying the Merrill Lynch tax table to determine your tax liability, you subtract any child care or other credits. That's your projected payment for 1990.
Self-employed people will also owe Social Security taxes. The current rate is 15.3 percent of the first $51,300 of net earnings.
Then you can put away your 1989 tax records. But for how long?
KPMG Peat Marwick, the public accounting firm, said the answer generally is three years. That is the period during which the IRS can question your return.
But Peat Marwick pointed out that the IRS has six years to act if it finds that you failed to report more than 25 percent of your income.
There is no time limitation if the IRS alleges your return is fraudulent.
The accountants suggest that you save copies of your actual tax returns indefinitely even if you discard the back-up records after several years.
You should keep some other records permanently as well.
That includes those pertaining to your principal residence, transfer or gift of assets, inheritances, carry-forward losses and IRA contributions.
(Next week: tax shelters)
by CNB