1993 tax info

           

          

          

          

                           The Best Ways To File

          

          

          1) Sometimes you can save money by not filing a joint

          return.  Several types of expenses (medical expenses,

          casualty losses, and miscellaneous expenses) are

          deductible only when they exceed a percentage of

          adjusted gross income.  If one spouse has a fairly high

          amount of expenses and a low adjusted gross income, it

          could make sense for the couple to file separate

          returns.  In addition, neither spouse can be claimed as

          a dependent on someone else's return if the couple

          files a joint return.  A family's taxes might be

          reduced if a couple with little income filed separately

          and allowed someone else, say their parents, to take

          the dependency deductions.  Also, a couple might

          jointly own income-producing property.  If that

          property is the only source of income for one spouse,

          taxes on that income could be reduced or eliminated by

          filing separate returns.  Finally pre-divorce alimony

          payments (such as those required by a separation

          agreement) cannot be deducted if the couple is still

          married and files a joint return.  Separated spouses

          might want to file separate returns so the spouse

          paying alimony can deduct the payments.  

          

          2)  For married taxpayers filing separately, the

          personal exemption phaseout begins at adjusted gross

          income of $83,850 and ends at $145,100 in 1994.  For

          married couples filing jointly, the phaseout begins at

          AGI of $167,700 and ends at $290,200 in 1994.  The

          result is that if married taxpayers are subject to the

          phaseout on a joint return but do not have equal

          incomes, they can avoid the phaseout by filing separate

          returns.  To benefit, the lower-earning spouse must

          have AGI of less than $83,850 and be able to claim the

          dependency exemptions for the children as well as his

          or her own personal exemption.  This means that spouse

          must separately provide over half the support during

          the year.  To ensure there is proof, we advise separate

          bank accounts to pay for support items.  See IRS

          Publication 17 for a list of the expenses that are

          considered support items.  When the marital home is

          jointly owned, each spouse is considered to contribute

          half of the cost regardless of the actual

          contributions.  Separate filing might backfire,

          however, for some married taxpayers with a large amount

          of itemized deductions.  That's because the itemized

          deduction reduction for married couples filing

          separately begins with an AGI of only $53,900 in 1994. 

          Because of this lower threshold, some couples will find

          that the higher-income spouse will lose more itemized

          deductions by filing separately than they would have

          lost on a joint return, and this loss will reduce or

          eliminate the tax benefit of saving the dependent

          exemptions.

          Using the long form can pay off even if you don't

          itemize deductions.  Some deductions are known as

          adjustments to income or above-the-line deductions. 

          These are available whether or not you itemize

          expenses.  But they are not listed on the 1040A short

          form.  The long form lists additional adjustments you

          might be entitled to such as Keogh plan contributions,

          penalties paid on early withdrawals of savings, alimony

          payments and the disability income exclusion.  The long

          form also lists tax credits that are not mentioned on

          Form 1040A.

          

          3) Tax return due on April 15 and you're not ready to

          file?  One way to extend the filing deadline is to file

          for an automatic extension with Form 4868.  Another way

          is to be residing outside the United States on April

          15.  If you are residing outside the United States you

          get an automatic extension of your filing deadline to

          June 15.  But you must be residing outside the United

          States on April 15.  It used to be that you could

          qualify for this extension if you were simply traveling

          outside the U.S. on April 15.  That is no longer good

          enough.  Another way to get an extension if you are

          living outside the United States is to file Form 2350

          before the due date for your return.  This can be used

          if you anticipate owing no tax on your foreign income. 

          This usually is used because you expect to meet the

          requirements for using the foreign earned income

          exclusion sometime after the return is due.

          

          4) Can't pay?  File anyway.  If you have money due on

          your tax return and can't pay your taxes, you should

          still file your tax return on time.  This alone will

          avoid the failure-to-file penalty and save you some

          money.  Send as much money as you can with the tax

          return and attach Form 9465, Installment Agreement

          Request, to the front of the tax return.  On Form 9465,

          give the amounts you can pay and the dates you can pay

          them.  The IRS will usually allow you to follow the

          installments requested or will work out other options

          with you.  One of the worst things to do is not filing

          a tax return at all.  That can add a lot more to the

          taxes already owed.  To get copies of Form 9465, visit

          your local IRS office or call 1-800-829-3676.

          

          5) Married couples with taxable income under $50,000

          and without dependents can now use the easiest tax form

          -- Form 1040EZ.  In the past, only single persons could

          use this easier, green, 10-line form.  Other

          requirements that also apply: you (and your spouse if

          filing jointly) were not age 65 or older or blind; all

          income is only from wages, salaries, tips, taxable

          scholarships and fellowship grants, and taxable

          interest income of $400 or less; no advance earned

          income credits were received in 1993; no itemized

          deductions, adjustments to income, or tax credits can

          be be taken and no other taxes are owed, other than the

          amount from the tax table.