Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, January 30, 1995 TAG: 9503110001
SECTION: BUSINESS PAGE: 6 EDITION: METRO
SOURCE: DAVE SKIDMORE ASSOCIATED PRESS
DATELINE: LENGTH: Long
Republicans have taken over Congress and are talking about rewriting numerous tax laws and - eventually - doing away with the income tax altogether.
But this year the changes you need to know about are far less sweeping. Unless your personal circumstances have changed, you probably can follow last year's return as a general guide for this year.
That said, here's an overview of what to watch for. Publication 553 has the details.
FILING DEADLINE: You have two extra days to file - until April 17. That's because April 15 falls on a Saturday.
TAX RATES: The tax rates are the same as last year: 15 percent, 28 percent, 31 percent, 36 percent and 39.6 percent. But the brackets for the first three rates have been adjusted for inflation.
For a single person, the first $22,750 of taxable income - what is left after subtracting exemptions and deductions - is taxed at 15 percent. The next $32,350 is taxed at 28 percent; the next $59,900 at 31 percent; the next $135,000 at 36 percent, and everything over $250,000 at 39.6 percent.
The first $38,000 of a couple's taxable income on a joint return is taxed at 15 percent; the next $53,850 at 28 percent; the next $48,150 at 31 percent; the next $110,000 at 36 percent, and everything over $250,000 at 39.6 percent.
Investment income that qualifies as capital gains is still taxed at 15 percent or 28 percent - no higher.
EXEMPTIONS: Your children are more valuable this year. The amount for each exemption - generally yourself, your spouse and your dependents - is $2,450, an increase of $100.
STANDARD DEDUCTION: The deduction has been increased to $3,800 for single people and $6,350 for couples filing joint returns, up from $3,700 and $6,200 respectively. Deductions can be smaller for dependents and larger for those 65 or older or blind.
HIGHER-INCOME PEOPLE: Couples and individuals with adjusted gross income over $111,800 (up from $108,450 the previous year) may have to give up part of some deductions. They lose all or part of their exemptions when their adjusted gross income is over $111,800 for single people and $167,700 for couples, up from $108,450 and $162,700.
SOCIAL SECURITY: Upper- and middle-income Social Security recipients and railroad retirees may have to pay taxes on a greater proportion of their benefits, up to 85 percent, instead of 50 percent. See the worksheet in your return's instruction booklet.
EARNED INCOME CREDIT: The credit for the working poor has been expanded. Now some childless people, in addition to families with children, are eligible. And the credit's been increased. A family with two or more children can receive up to $2,528. Again, see the worksheet in your instruction booklet.
CHARITABLE CONTRIBUTIONS: The law now requires the Internal Revenue Service to be a little less trusting than it used to be. If your donation was $250 or more, you'll need a written acknowledgment from the charity. A canceled check isn't enough. If you contribute more than $75 and receive goods or services in exchange, you'll need a statement from the charity stating how much the goods and services were worth. Your contribution is only the amount over that value.
MOVING EXPENSES: Certain items are no longer deductible and your new workplace must be 50 miles farther from your old home than your old workplace. The old rule was 35 miles. Also, you now subtract moving expenses as an adjustment to income on the front of your tax return instead of as an itemized deduction on Schedule A.
MORTGAGE POINTS: If you purchased your main home after 1990, you may be able to deduct points that the seller paid on your behalf in addition to the points you paid directly. Review your mortgage closing documents to see if you want to file an amended return for 1991, 1992 or 1993.
SOCIAL SECURITY AND MEDICARE TAXES: Only the first $60,600 of wages in 1994 was subject to the 6.2 percent Social Security tax. If you had more than one employer and paid more than $3,757.20, any overpayment can be claimed as a credit against your income tax or refunded. Note it on line 58 of Form 1040 or line 28d of Form 1040A. If any one employer withheld too much, see that employer. All wages now are subject to the 1.45 percent Medicare tax. In the previous year, the limit was $135,000.
BUSINESS DEDUCTIONS: Only 50 percent of that three-martini lunch and other business meals and entertainment is deductible, down from 80 percent. Generally, you no longer can deduct expenses paid to bring a spouse or dependent along on a business trip. Nor can you deduct the cost of club dues, unless the club has a civic, public-service or professional purpose. You might be able to use a new and simpler form for claiming business deductions, 2106-EZ.
MILEAGE: The standard mileage rate for business use of a car is 29 cents a mile, up from 28 cents. The mileage deduction for charitable purposes remains 12 cents a mile and, for medical purposes, 9 cents.
401(k) PLANS: The limit on contributions to these employer-sponsored retirement accounts and simplified employee pension plans in 1994 was raised to $9,240, up from $8,994.
NANNY TAX: The threshhold for paying the so-called ``nanny'' tax for household employees has been raised. You must pay it for employees you pay $1,000 or more a year, up from $50 a quarter previously. If you've made quarterly payments with Form 942 based on the old threshhold, you can get a refund, plus interest, by filing Form 843.
PAYMENT VOUCHERS: Some taxpayers will receive a Form 1040-V, allowing them to send their check for taxes owed to a different address than their return. This will allow the IRS to process payments more accurately and efficiently. It plans to expand the system in future years. If you don't use 1040-V, the IRS now instructs you to enclose - but not attach - your payment to your return.
HEALTH INSURANCE: The 25 percent deduction for health insurance costs of self-employed people has expired. In case Congress restores it retroactively, the IRS left line 26 on Form 1040, for subtracting it from income. If Congress acts after you've filed, you can file a revised return, 1040X.
FEES: Requesting a copy of a back return, using Form 4506, costs $14, up from $4.25. The IRS will start collecting $43 from taxpayers granted an installment agreement to pay delinquent taxes. Restructuring or reinstating an agreement will cost $24.
by CNB