Despite being told scare stories about taxes and the Interna Revenue Service for years, the fact is that you should be able to do your own taxes if you want to.
That's not the same as saying taxes can be fun. It's tough enough giving your hard-earned money to Uncle Sam. It's even less pleasant filling out the tax forms. So, if you can afford to pay some competent tax professional to prepare your return, go ahead. You will be saving yourself some time and probably some aggravation.
But most people should be doing their own taxes. It's not that hard. And besides saving some money that would go to a tax preparer, you'll also emerge from the experience with a much better idea of your family's finances.
Today's Tax Guide is designed to put you in touch with the information you need to answer your tax questions; it will not directly answer all or even most of those questions. Nearly all of the information here comes from two basic sources -- the U.S. Internal Revenue Service and the Maryland Comptroller's office.
I also relied on two excellent presentations of IRS information -- the 1990 and 1991 editions of the "U.S. Master Tax Guide" produced by Commerce Clearing House in Chicago, and a computer tax software package called MacInTax produced by Softview Inc. in Oxnard, Calif.
Tax forms: (800) 829-3676 (800-TAX-FORM)
Tax questions from specific cities: Baltimore, 962-2590; Philadelphia, 574-9900; Pittsburgh, 281-0112; Richmond, 649-2361. Tax questions from Maryland, District of Columbia, Delaware, Pennsylvania, Virginia and West Virginia: (800) 829-1040.
Hearing-impaired callers with TDD equipment, call (800) 829-4059, 8 a.m. to 6:30 p.m.
General number (800) 638-2937 (800-MD TAXES).
For specific cities and towns, look under heading Maryland Tax Help.
What's new for '90?
Can you file Form 1040A? If you had to file Form 1040 last year because you received a pension or annuity, payments from your IRA or taxable Social Security benefits, you may be able to file Form 1040A this year instead of Form 1040.
Increased deduction for exemptions. The deduction for each exemption for you, your spouse, and dependents has increased to $2,050.
Should you itemize or take the standard deduction? The standard deduction has increased for most people. Because of this increase, it may be to your benefit to take the standard deduction this year even though you itemized deductions in the past. The standard deduction is $3,250 for single filers, $5,450 for joint returns ($2,725 if married and filing separately) and $4,750 for heads of households.
Increased earned income credit. You may be able to take this credit for 1990 if you earned less than $20,264 (up from $19,340 in 1989 earnings) and a child lived with you. The maximum amount of money due you is $953.
Personal interest. Deduction of personal interest in limited to 10 percent of this expense and is eliminated in 1991.
Mileage. The standard mileage rate is 26 cents a mile with no 15,000-mile annual limit.
Exclusion of interest from EE U.S. savings bonds. If you cash Series EE U.S. savings bonds in 1990 that were issued after 1989, you may be able to exclude from income part or all of the interest on those bonds. But you must have had higher education expenses in 1990 for you, your spouse, or your dependent.
Self-employment tax. The tax is 15.3 percent of the smaller of these amounts: 1) 92.35 percent of your net earnings from self-employment or 2) $51,300 minus your wages subject to Social Security or railroad retirement taxes. Also, if you have to pay the self-employment tax, you may deduct one-half of that tax figuring your adjusted gross income.
Additional information. If you want more information about tax-law changes for 1990, get IRS Publicatin 553, Highlights of 1990 Tax Changes.
Looking ahead to 1991
Tax rates for single taxpayers are 15 percent of the initial $20,350, 28 percent of earnings between $20,350 and $49,300 and 31 percent of the amount over $49,300.
Tax rates for married taxpayers filing jointly are 15 percent of the initial $34,000, 28 percent of earnings between $34,000 and $82,150 and 31 percent of the amount over $82,150.
Tax rates for married taxpayers filing separately are 15 percent of the initial $17,000, 28 percent of earnings between $17,000 and $41,075 and 31 percent of the amount over $41,075.
Tax rates for heads of households are 15 percent of the initial $27,300, 28 percent of the earnings between $27,300 and $70,450 and 31 percent of the amount over $70,450.
Capital gains. The top income tax rate on capital gains is 28 percent.
Withholding. Changes in tax rates for income earned during 1991, plus new limits on personal exemptions, will require many people to change the amount of money withheld from their paychecks. Check with your employer to make sure your withholding is being done properly. Details can be found in IRS Publication 919, (Is My Withholding Correct for 1991?)