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New tax season ushers in some changes
by Mary Deibel
Scripps Howard News Service


January 07, 2005

Washington - The Internal Revenue Service is banking on more than half the nation's 133 million taxpayers to file their 2004 taxes electronically during the tax season that kicked off Monday.

It would mark the first time that more than 50 percent of individual taxpayers filed taxes by computer or touch-tone phone, moving the IRS closer to Congress' mandate that 80 percent of U.S. taxpayers e-file returns by 2007 to save money. Some 47 percent e-filed last year.

The 29.5 million taxpayers who still use pen and paper will get tax packages by regular mail this week, and another 11 million households will get computer filing brochures in hopes they'll change how they file taxes. The mail-outs cost $15 million for printing and postage.

IRS Commissioner Mark Everson reports that e-filers on average get refunds in half the time of other filers. Use that time to put the money to work for you instead of giving Uncle Sam an interest-free loan.

Changes to look for this filing season include simpler forms for more taxpayers:

  • Income limits for IRS short forms 1040EZ and 1040A increase from less than $50,000 to less than $100,000. (The 1040EZ is for taxpayers with no dependents, no adjustments to income and no tax credits other than the Earned Income Tax Credit; and the 1040A is for non-itemizers with few income adjustments and limited tax credits.)
  • The self-employed can use IRS short form Schedule C-EZ if their business expenses are no more than $5,000, up from $2,500 before.

Tax-law changes include giving itemizers the choice of deducting state and local income taxes or sales taxes, an easy choice for residents of Florida, Nevada, South Dakota, Tennessee, Texas and Wyoming - states with no general income tax - but less clear-cut for people elsewhere.

The change was part of a law that President Bush signed in October. But figuring how it applies was an open question until last week, when the IRS issued Publication 600 to answer the tricky questions the option poses:

  • How do itemizers deduct sales tax if they haven't saved sales receipts? They look up totals on IRS Publication 600's state tax tables on pages 3-5.
  • What if your city and county government charge local sales taxes, too? The booklet has a worksheet on which you reckon local-option sales taxes by filling out lines 2a through 2d.
  • What if you paid special sales tax on that new car, RV or other big-ticket item? Use your receipts to claim those taxes over and above general sales taxes you paid under Publication 600's sales-tax tables. Big spenders (including those who entertain lavishly and pay hefty restaurant excise taxes like levies charged in Washington, D.C.) should save actual receipts to tote up actual sales taxes.
  • What if you move from a high-income-tax state to one that relies on sales tax? What if you spend part of the year in New York, California or other state with high income taxes and winter in Florida? You must choose between the income- or sales-tax deduction and cannot claim both, the IRS advises.

To figure which leaves you with the bigger tax break, pro-rate the number of days you spent in each place, divide the number of days by 366 - the number of days in 2004 - and apportion sales-tax vs. income-tax totals accordingly.

Taxpayers may be able to deduct donations to victims of the South Asian tsunami if contributions are made to tax-exempt U.S. charities. But these organizations must have "full control and discretion over the use of such funds," according to the IRS.

Donations to individual victims or foreign charities that do not qualify as tax-exempt under Section 501(c)(3) of the U.S. Internal Revenue Code cannot be claimed.

Taxpayers making donations through Jan. 31, 2005, to aid tsunami victims will be able to claim deductions on their 2004 tax returns under legislation the House and Senate cleared Thursday for President Bush's signature. Otherwise taxpayers would have to wait until 2006 to claim a tax deduction for tsunami contributions made this month.

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E-mail Mary Deibel at deibelm(at)
Distributed by Scripps Howard News Service,

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