Maryanov Madsen Gordon Campbell, Certified Public Accountants

New laws, ideas provide tax help

Howard Gordon
Special to The Desert Sun
April 4, 2007

Now's a good time for some last-minute ideas that may reduce your tax bill or at least eliminate some of the pain involved.

The procrastinators among us will be happy to hear that the filing deadline has been moved forward to April 17, because April 15 falls on a Sunday, and Monday the 16th is a holiday in Washington, D.C.

If you're still in need of another deduction and qualify for a deductible IRA, this is a good way to lower your tax liability while investing on a tax-deferred basis. Don't forget that the IRA contribution must be made by April 17, even if you're taking an extension on your return.

Congress passed a series of tax laws late in 2006 that will affect your 2006 return.

The good news is that most of these changes will lower your taxes; the bad news is that the changes were made so late in the year that the paper tax forms you received from the IRS do not include them.

The government has issued instructions on how to add these deductions on your paper return, but I'm afraid that will just create complications. I strongly recommend that you use a professional preparer or, since almost all software has been updated, a computer program, to prepare your return.

One of the changes made to the Federal return late in 2006 allows you to claim the state sales tax you paid instead of the state income tax you paid as an itemized deduction on your return.

I realize that for most, California income tax will provide the larger deduction, however there are cases in which state sales tax will actually be greater.

For example, if you made large purchases like a car or other big-ticket items subject to sales tax, you may find that this sales tax, together with the tax already allowed by the IRS (shown on their state sales tax table) creates a larger deduction than your California state income tax.

Taxpayers who have income not subject to California income tax, such as U.S. treasury interest or Social Security income, may also find their sales tax table exceeds the California income tax they paid. You can check out the IRS sales tax tables at www.IRS.gov.

Other changes not reflected on paper tax forms include a $250 deduction for teachers for classroom supplies.

Also, educational expenses for you or your dependents of up to $4,000 are deductible for singles earning less than $65,000 and married couples earning less than $130,000. Educational expenses must be for "qualified tuition and related expenses".

The IRS recently issued a notice detailing common mistakes made by taxpayers.

One of the most common is choosing the wrong filing status. Keep in mind that there are choices other than "single" or "married-filing-jointly". For instance, many people miss taking advantage of "head-of-household" tax rates, which can substantially lower your tax bill.

Finally, keep in mind that mistakenly using an incorrect Social Security number for yourself, your spouse and/or your dependents can hold up your refund. Also, one last item to remember is the telephone excise tax refund. Don't forget to check the box for this - it's an automatic credit. You can get a one-time credit of $30 for single and up to $60 for a family of four.

Good luck and don't forget, like many people do, to sign that return!

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