If your life has changed, look for new tax breaks

STAYING AHEAD

March 06, 1995|By JANE BRYANT QUINN

NEW YORK -- New money-savers always lurk in the tax code -- often because of a change in your life. Your circumstances change, presenting new breaks that you hadn't considered before. For taxpayers combing their records for fresh possibilities, here are seven ideas:

* 1. If you're itemizing deductions, maybe you should switch to the standard deduction.

You're a particularly good candidate if your mortgage is almost paid off. As your mortgage-interest deduction drops, you may find that the standard deduction will actually save you taxes. This deduction has risen to $3,800 for singles, $5,600 for heads of household and $6,350 for married couples filing jointly. If you itemized deductions last year, add them up. They may be closer to the standard deduction than you thought.

* 2. If you're single but with family responsibilities, you may be a head of household. For example, this is usually the right filing status for single parents with a child at home (check the IRS rules for details). It may also cover adult children who take care of elderly parents. A dependent parent doesn't even have to live with you, provided that you paid more than half the annual cost of his or her main home (including a nursing home). Heads of household get lower tax rates than singles do.

* 3. Don't miss your extra exemptions. The personal exemption has increased, to offset the increase in inflation. You can exempt $2,450 of income for yourself, your spouse and each of your dependents. Married people get an extra $750 exemption if they're at least 65, and another $750 if they're blind (that goes to $950 for singles). The personal exemption starts to phase out for singles with adjusted gross incomes over $111,800, heads of household over $139,750 and marrieds over $167,700.

* 4. Don't overpay your Social Security tax. You owe Social Security taxes on wages up to $60,600. Employees pay 6.2 percent, so your total tax shouldn't top $3,757.20. If you worked two jobs, and more than that amount was deducted from your paychecks, you're owed a refund. The tax information is on the W-2s that your employers sent. The self-employed pay 12.4 percent, then deduct half on their tax return. There's no income lTC

ceiling on the Medicare tax. Employees pay 1.45 percent and the self-employed 2.9 percent.

* 5. See if you're newly eligible for the earned-income credit. This credit, for lower-income workers, was formerly reserved for parents only. Now it's also available to workers without children, provided that they (a) earned an income, (b) were 25 to 64 at the end of last year, (c) lived in the United States more than half the year and (d) aren't claimed as dependents on someone else's tax return. If you made a home for a qualifying child for more than half of last year, the age limits don't apply.

The credit rose substantially this year, to give a boost to the working poor. It's worth as much as $2,528 to parents whose incomes range from $8,400 to $11,000 and who have more than one child. As incomes rise, this tax break shrinks. But with more than one child, you get at least some credit on incomes up to $25,296. For one-child families, the income ceiling is $23,755 and for the childless, $9,000. You're entitled to this money even if you owe no tax. Simply file a tax return and the government will send you a check.

* 6. Take this simple business write-off. If you drive your car on business, the standard deduction is up a penny, to 29 cents a mile. Those who love to collect receipts can sometimes get a higher deduction by keeping track of every itty-bitty car expense. If you volunteer for a qualified charity, your driving expenses are deductible at the rate of 12 cents a mile.

* 7. Get money back on your "nanny tax." Congress finally set baby sitters free from the Social Security tax. Formerly, you owed the tax for any employee you paid at least $50 in a calendar quarter. Now, you owe it only if you pay $1,000 or more over a year. The law passed in October but was made retroactive to last Jan. 1. If you paid for a worker who is now exempt, both you and the worker are due a refund on your 1994 returns. Claim the refund on Form 843.

NEXT TIME: Some changes in itemized deductions.

Jane Bryant Quinn is a syndicated columnist. Write to her at: Newsweek, 444 Madison Ave., 18th Floor, New York, N.Y. 10022.

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