Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, February 25, 1991 TAG: 9102230009
SECTION: BUSINESS PAGE: A7 EDITION: METRO
SOURCE: JIM LUTHER ASSOCIATED PRESS
DATELINE: LENGTH: Long
The instructions that accompany your tax forms include a work sheet for computing the tax on your benefits. Here is the essence:
Add all your income that is taxable plus any tax-exempt interest. To that total, known as modified adjusted gross income, add half the Social Security benefits you received in 1990. None of your Social Security is taxable unless that total exceeds a base amount: $25,000 for a single person, $32,000 for a married person filing a joint return, or zero for a married person filing separately who lived with a spouse at any time last year.
If the total is above the base amount, you pay tax on whichever is smaller:
Half your Social Security benefits or;
Half the amount by which the sum of modified adjusted gross income and half your benefits exceeds the base amount.
You should have received by Jan. 31 a Form SSA-1099 showing the benefits you received.
A railroad retiree should receive instead Form RRB-1099. Tier I railroad retirement benefits are subject to the same calculations as Social Security benefits.
If you have excluded from taxation any income earned in a foreign country, a U.S. possession or Puerto Rico, those amounts must be added to your modified adjusted gross income before making the Social Security calculation.
Some deductions, known as adjustments, may be claimed by taxpayers whether or not they itemize. But using them requires the filing of a long Form 1040.
For example, if you paid a penalty for early withdrawal of funds from a savings certificate, that penalty may be written off. So, too, may alimony payments you made in 1990, so long as you write on your return the name and Social Security number of the recipient.
Jury-duty fees that you turned over to your employer in return for continuing your regular pay may be subtracted from income.
These and other adjustments, including deductible contributions to Individual Retirement Accounts and expenses of producing rental income, are entered on Page 1 of Form 1040.
Some other items to consider as you prepare your 1990 return:
If you have a bone to pick with the federal government, think twice before using your tax return to make your point. The law imposes a $500 penalty for filing a frivolous return. Should you carry your fight into Tax Court, you could be liable for another penalty of up to $25,000.
Your employer should have sent you a W-2 statement of wages earned by Jan. 31. Failure to receive the form does not relieve you of the liability to report your income and pay tax on it.
You will meet the deadline if your return is postmarked by midnight April 15. Failure to file on time can bring a penalty of 5 percent of the tax due per month or part of a month, up to 25 percent, plus interest. If you file but don't pay all that is owed, the penalty is 0.5 percent of the unpaid balance per month or part of the month plus interest. Once the IRS contacts you and demands immediate payment, the penalty rises to 1 percent.
If you are unable to complete your return by the deadline, file a Form 4868 and get an automatic four-month extension. But that form will have to be accompanied by a check for the tax you estimate will be owed once you file.
A sure way to get into trouble with the IRS these days is to fail to report interest or dividends on your tax return. The bank or other organization that paid you already has reported that to the IRS. When IRS computers detect the discrepancy, you will receive a notice that you owe taxes plus penalty and interest.
On occasion a broker or other payer will erroneously report your tax-exempt interest to the IRS and to you on a Form 1099. If that happens, list that as part of your interest on Schedule B, Line 1 (or on Schedule 1, Line 1 if you are filing Form 1040A). Then write in "tax-exempt interest" and subtract this amount from your total interest that goes on Line 2.
A day after mailing your return you realize you failed to report a dividend check or neglected to claim a deduction for medical expenses? File an amended return, Form 1040X.
Did you work for two or more employers last year? If your wages exceeded $51,300, you may have had too much Social Security tax withheld from your paychecks. Anything over $3,924.45 (for one spouse) may be subtracted on Form 1040, Line 59, from income taxes owed.
Unemployment compensation is fully taxable, as is sick pay. Worker's compensation for job-related injuries is tax-free.
Keep your tax records for at least three years. Any record relevant to ownership of property, especially your home, should be retained permanently.
One small step for simplification: round off figures to the nearest dollar.
Sometimes a portion of the expenses of using part of your home for business may be deducted but limitations are tight. As a starting point, the home must be your principal place of business for any of your trades or a place where customers deal with you in the normal course of business. See IRS Publication 587.
There is a persistent story that using the stick-on mailing label from your tax-forms package sets you up for an audit. The IRS says that is nonsense, and includes in this year's package an explanation of the coding on the label. The label expedites processing, the agency says.
by CNB