SAN FRANCISCO – This year, thanks to Congress making tax-law changes long after the IRS printed its forms, some taxpayers will spend a fair amount of time trying to figure out how to take the deductions that don't appear on Form 1040 and elsewhere.
The Tax Relief and Health Care Act of 2006, signed into law on Dec. 20, revived some expired tax perks, including deductions for state and local sales tax, higher education tuition and fees, and for teachers' out-of-pocket costs for classroom materials.
But, since Congress passed the law after the IRS printed its forms and instructions, you won't find a line for those deductions on Form 1040 or Schedule A (for those that require taxpayers itemize). To make matters more confusing, some of the printed IRS instructions may say these deductions are no longer available.
And, because the law changes came so late in the year, you'll find what may be unfamiliar deductions on Form 1040, as the IRS pushed some obscure deductions onto the form to avoid changing a lot of line numbers, said Mark Luscombe, a principal analyst with CCH Inc., a Riverwoods, Ill., tax publisher.
When the IRS was printing its Form 1040, "rather than eliminate those deduction lines and change the numbering of all the other deductions, they pulled a couple more obscure deductions ... and gave them their own line to replace the ones that were removed," Luscombe said.
Taxpayers this year are likely to be more confused than ever, he said.
"We've had last-minute tax legislation in the past, but I don't recall that it's ever affected the individual form so much," Luscombe said. "Most people anticipate there will be a lot of errors made and the need to file amended returns — which will increase everybody's costs."
Those who file online won't have the same problem. Software vendors say their software is updated with the reinstated tax perks, but whether you file online or on a paper form, don't forget to claim the deductions described below.
And online filers will face one hitch: Those who claim any of the reinstated deductions won't be able to electronically submit their return until Feb. 3. That's the date the IRS said its systems will be up-to-date to reflect the law changes.
Some vendors said their software will allow those taxpayers who claim these deductions to complete their return before that date, but then those taxpayers will need to revisit the Web site on or after Feb. 3 to click "send."
"If you're not eligible to claim any of those deductions, you can file with TurboTax" already (as of Jan. 12), said Julie Miller, a spokeswoman at Intuit, the company which makes TurboTax.
Meanwhile, for taxpayers who claim one of those deductions "we provide them a way to sign up and get a notification when they can go back and e-file," she said. "We're going to tell you, 'You qualify for an extender-bill deduction or credit. The IRS is not accepting these returns, but we will proactively notify you when the IRS will be accepting these returns.'"
One such deduction is for tuition and fees paid for higher education, now available for 2006 and 2007. Taxpayers can deduct up to $4,000 of tuition and fees paid to colleges. The tax break starts phasing out for single filers with an adjusted gross income of $65,000 or more and for joint filers with an adjusted gross income of $130,000 or more.
But, where taxpayers claimed that perk last year — on Form 1040's line 34 — this year they'll find an entry allowing them to claim jury-duty pay they gave to their employer, Luscombe said.
This year, to claim the higher-education tuition and fees deduction, taxpayers need to go one line down, to line 35, and write the letter "T" between the number "35" and the words that begin "domestic production activities," which is a deduction that taxpayers can also claim on that line.
If you can claim both the tuition deduction and the domestic production activities deduction, you'll need to write the letter "B" on line 35 and attach a separate statement explaining both deductions, according to CCH.
Sales tax deduction
Despite what some of the printed instructions might say taxpayers who itemize can choose between a deduction for state income taxes they paid or a deduction for state or local sales taxes paid. Taxpayers can figure the deductible amount by using their receipts or by using the sales tax tables in IRS publication 600, according to CCH.
Taxpayers choosing to take the state and local sales tax deduction should claim it on Schedule A, by entering the letters "ST" on line 5 of Schedule A, which they should then file with their Form 1040, according to CCH.
About 3 million teachers claimed the educator-expense deduction last year, according to CCH. This year, taxpayers eligible for the $250 deduction will need to write their claim on Form 1040's line 23, also used by taxpayers claiming the deduction for Archer Medical Savings Accounts.
Taxpayers claiming the educators' deduction should write the letter "E" between the line number and the word "Archer" on the form. To be eligible, you must work at least 900 hours during the school year with students in kindergarten through high school.
Taxpayers claiming both the educator deduction and the Archer MSA deduction need to write "B" on line 23 and attach a separate statement explaining both deductions.
Refund for long-distance calls
Here's the good news: There's one easy-to-find tax perk this year, right on Form 1040's line 71. It's called the telephone excise tax refund. Taxpayers can figure their refund by using their telephone bills to calculate how much they paid in eligible excise tax between Feb. 28, 2003 and Aug. 1, 2006. Or, taxpayers can claim a standard amount refund based on the number of personal exemptions they've paid ($30 for one exemption, $40 for two, $50 for three and $60 for four or more, according to CCH).
If you claim the actual amount of tax you paid, you'll need to file a Form 8913. Otherwise, you can claim your refund on Form 1040. And taxpayers who aren't required to file a tax return can claim their telephone excise tax refund by using the new Form 1040EZ-T to claim a standard refund.
Copyright (c) 2006 MarketWatch, Inc.