Are you getting a jumpstart on your 2006 tax return? Are you self-preparing your taxes? If so, beware! The IRS has mailed packets of tax forms with lines missing on which to claim important deductions. The lines are for claiming deductions for state and local sales tax, higher education tuition and fees, and educator expenses.
If you’ve claimed these deductions in the past, you’ll probably notice they are not on this years form. But for those of us claiming the deductions for the first time, the paperwork won’t alert us of these possibility.
Here’s a little background. These deduction expired December 31st, 2005 and the president did not reinstate them until this past December. The IRS could not wait any longer before printing and mailing out our tax forms. The president reinstated the deductions but there wasn’t enough time to reprint the forms. Taxes are complex to begin with. Because of the delay in reinstating the deductions, filing will be more confusing.
IRS hopes to alleviate the confusion by mailing out Publication 600, State and Local General Sales Taxes. I don’t anticipate this will help, as the booklet is 8 pages and full of forms, formulas, and tables. So where does that leave us?
Well, you shouldn’t have a problem if you’re using tax preparation software or e-filing. Just make sure you have installed the latest software updates.
If you are one of the estimated 2.5 million taxpayers filing via paper, the National Association of Tax Professionals recommends following these instructions:
State and local general sales tax deduction:
1. Claim the deduction for state and local general sales tax on Schedule A (Form 1040), Line 5 (state and local income taxes).
2. Enter “ST” on the dotted line to the left of Line 5 to indicate you are claiming the general sales tax deduction instead of the deduction for state and local income tax.
3. Use the state and local tax tables from 2006 IRS Pub. 600, as well as the worksheet and instructions to figure the deduction.
Remember, the state and local sales tax deduction is available to all taxpayers, regardless of where you live.
Tax fact: Eight states don’t have state and local income taxes. This deduction was originally designed to benefit taxpayer in those states.
Higher education tuition and fees deduction:
1. Taxpayers must file Form 1040 to claim this deduction of up to $4,000 of tuition and fees paid to a post-secondary institution. It cannot be claimed on form 1040A.
2. Claim this deduction on Form 1040, Line 35 (domestic production activities deduction).
3. Enter “T” on the dotted line to the left of that line entry if claiming the tuition and fees deduction.
4. Enter “B” on the dotted line to the left of that line entry if you’re claiming both a deduction for domestic production activities and the deduction for tuition and fees. If you enter “B” you must attach a breakdown showing the amounts claimed for each deduction.
Educator expense adjustment to income:
1. Educators must file Form 1040 to claim this deduction of up to $250 of out-of-pocket classroom expenses. It cannot be claimed on form 1040A.
2. Claim the deduction on Form 1040, Line 23 (Archer MSA deduction).
3. Enter “E” on the dotted line to the left of that line entry if claiming educator expenses, or “B” if claiming both an Archer MSA deduction and educator expenses. If you enter “B” you must attach a breakdown showing the amounts claimed for each deduction.
Unfortunately the omissions of these lines delays processing time. Shelf your hopes for a speedy refund of your money. The IRS isn’t even going to begin processing returns with these deductions until mid-February as they need to reprogram their computers.
Hopefully these instructions will help you claim your maximum deduction. If you have any questions or concerns about your tax return, feel free to contact me for more information.