Nevada County Picayune and Gurdon Times Newspaper Archive

Few major changes made in tax laws

It's tax time and people are doing one of two things.

Either they're getting their financial files in order, making sure the W-2 forms are correct and preparing to do their own taxes or take them to a professional.

Or, they're ignoring the situation, hoping it'll go away, but knowing better and waiting until the last minute, when they'll scramble to get all their data together. This group will also either try to do their own taxes or show up at a professional's office and dump the paperwork out of a cardboard box onto a desk.

Both groups, though, need to know this, the IRS made few major changes in the tax code for this year.

One of the major changes for those itemizing their federal return is the option of choosing to take their state withholding or a new sales tax credit, whichever will help them more.

Brenda Williams, with H&R Block, said the IRS has a formula it will use to figure the sales tax a person or family pays based on their income. However, for those who bought big ticket items, such as a new car or mobile home, taking the sales tax credit would be more beneficial.

Brad Crain, with Dalrymple-Crain Accounting, agreed, adding this deduction is deductible on Schedule A under the heading of "nondeductible taxes".

One thing this section states is taxpayers can choose one or the other, but not both. Crain and Williams agree taxpayers should take the one which will help them the most. Before this year, sales tax was not deductible in any way.

Williams said the sales tax option can carry over to the state forms from the federal, but not the other way around.

She also pointed out there is a new health savings credit. Under this option, insured people with high deductibles ($1,000 or more) can put money in a health saving account which draws interest. This money can be used to pay an insurance deductible with no tax penalty. However, if the money is used for any other purpose, it would be taxed like an IRA account.

Williams said taxpayers can add money to this account annually, and don't have to use it. "The intent is to leave the money there."

Crain said under the health savings account, 2004 contributions are limited to $2,600 ($3,100 for those 55 or older) for self-only coverage; or $5,150 ($5,650 for those 55 and older) for family coverage. The minimum deduction is $1,000 for individuals and $2,000 for family coverage.

This option wasn't available last year.

There were no changes in the child tax credits. Families can get $1,000 per qualifying child. However, according to Crain, this amount is scheduled to drop to $500 in 2011.

Last year, those who received checks ($400 per child) from the government had this amount deducted from the child credit.

Area educators will be glad to know they still have the educator expense available. Under this law teachers spending $250 out of their own pocket for classroom materials can deduct this from their taxes. This law, Crain said, was supposed to expire after 2003, but has been extended two more years.

Soldiers returning from Iraq in time for the tax season can exclude their combat pay from their gross income for purposes of calculating their earned income credit.

Those who use Section 179 deductions need to know this law has been changed. When major purchases, such as tractors or hay balers, are made, they must be Section 179'd then. Before, the purchase didn't have to be done under Section 179 the year of purchase, but could be done the next year.

These are a few of the changes people can expect when doing their taxes. Williams and Crain agree the best thing to do is try and have the taxes prepared as early as possible and avoid the last minute rush.