Potential troubles of the tax season include retirement, children, charity

STAYING AHEAD

March 13, 1995|By JANE BRYANT QUINN

NEW YORK -- Congress keeps nipping at the tax code, to pick up a few billion dollars here and there. It won't fix the deficit, but who's counting? This year at least, you have two extra days to hold your money; tax returns aren't due until April 17.

Some new and old troubles of the season:

* Retirement angst.

If your retirement income is well above average, you may pay taxes on 85 percent of your Social Security benefits.

You figure this out on the work sheet that came with Form SSA-1099, which tells you how much Social Security income you received last year. You'll owe the 85 percent tax if your modified adjusted gross income, plus one-half of your Social Security benefits, exceeded $44,000 for marrieds and $34,000 for singles and heads of household.

* Taxes and kids.

Kids have to file a tax return if they have any unearned income -- even $1 from savings-account interest -- and their combined earned and unearned income exceeds $600.

The same $600 tax trigger applies to children whose income is entirely unearned (from such things as interest, dividends and capital gains). By contrast, a child with a paycheck and zero unearned income pays no income taxes until his or her wages top $3,800.

Congress didn't mean to pick on kids with savings. Taxes have to click in early on unearned income, to keep parents from sheltering their own assets under the child's name.

* With charity for none.

Not that the government doubts your word, but . . . If you claim a charitable deduction of $250 or more, you now need a written acknowledgment as proof. A canceled check won't do. If the donation included a purchase -- for example, tickets to a concert that benefited the charity -- you need written proof for payments topping $75.

In the latter case, the acknowledgment should say how much of your payment was a donation and how much covered the item bought. Only the donation is tax deductible.

* Chowing down.

Are you writing off business meals and entertainment? Only half the cost is deductible, down from 80 percent in 1993.

* Time-release tax.

Congress passed the 1993 tax increase in August but made it retroactive to the first of that year. The increase applied only to high-income people, and the bite was big. So they were allowed to pay in three installments, the second of which is due this April 17. The government isn't charging interest, as long as you pay on time.

* Lost health.

At present, the self-employed can no longer deduct a portion of their health insurance premiums. Congress let this tax break lapse. You might want to wait until April to file your tax return, to see if the deduction is restored.

* Good points.

"Points" are a fee you pay the bank to get a mortgage. They're deductible in the year you pay them, if the loan is used to buy or improve your principal home. The IRS has also concluded that you can deduct these points even if they're paid by the seller, provided that you deduct them from your "basis." (The "basis" is your home's official cost, for tax purposes.)

This ruling is retroactive to 1991, if you want to file an amended return.

* Moving target.

Congress tightened up on the tax write-offs given to people who move to take a new job. Your new job now must be at least 50 miles farther from your old home than your old job was.

For example, if you used to commute 10 miles, you'd have to face the prospect of a 60-mile commute before you could tax-deduct the cost of moving closer to the place you're going to work.

Also, fewer expenses are deductible. For example, you can no longer write off the cost of house-hunting trips. The only plus: Qualifying moving expenses are no longer treated as tax deductions. They're adjustments to income, which means they're available to taxpayers who use the standard deduction.

* Savings pinch.

The ceiling dropped on tax-deferred, defined-contribution retirement plans. If you earn more than $150,000, your company may not be able to contribute as much to your plan as it did last year. This rule also pinches contributions made by the high-earning self-employed.

* Farewell freebies.

It's goodbye to your "business" deductions for club dues or initiation fees. That means all clubs -- business, social, luncheon, athletic, airline.

If your company bought the membership, it doesn't get a deduction, either. You'll have to play golf on your own green.

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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