Tax Filing Follow-Up

The March 1996 issue of Best Years Beacon published an article, Get Some Breaks at Income Tax Time. This follow-up article is in response to the many queries received.

Individuals age 65 or older and/or blind are given additional tax breaks by the IRS. To assist one in understanding the scope of this discussion, it would be helpful to have a copy of the 1995 1040 form and instruction booklet.

Line 34 of Form 1040 indicates, based on filing status (married, single, etc.), the amount a taxpayer can deduct for the Standard Deduction, or Itemized Deductions if greater. In this section, observe the wording, "But if you checked any box on line 33a or b, go to page 23 to find your standard deduction." Go to page 23 of the instruction booklet. The top left paragraph on page 23 gives instructions for line 33a. The last line of the paragraph says, "You need this total to use the Standard Deduction Chart for People Age 65 or Older or Blind on page 22." Go to page 22, complete this chart, clip it out, and attach it to your 1995 tax records. By following this chart, you will be shown your standard deduction, which is also the amount that should be written on line 34 of your 1040 form.

In addition, the article mentioned that 1.8 million taxpayers file unnecessary tax returns. That helps the trash disposal company stay in business but it only adds to the tab all of us taxpayers are already paying. If you don't make enough money, they don't want to hear from you. Its kinda like, "Don't call us, we'll call you." The typical question would be, "How do I know whether or not to file an income tax return?" Well, its very simple and it can save a lot of unnecessary headaches and time. (Its my advice that any time saved should be donated to a very worthy cause - like playing golf.) Just follow these steps: 1) every year, when new tax forms are printed and available, get Form 1040 and instruction booklet, 2) figure the standard deduction as previously discussed, 3) go to line 36 on Form 1040 (it may be a different line in future) and figure the amount of your personal exemptions, 4) if personal exemptions plus standard deduction exceed your income, go play golf - your income is insufficient to file an income tax return. The exception would be if you had some withholding during the year and wanted to claim a refund.

On another note, the last paragraph of the article mentioned that upper-income seniors may find themselves paying taxes on up to 85 percent of their social security benefits. Planning tip: for income not being spent, defer it. For example, if one has a certificate of deposit, and the interest is reinvested, one should transfer the money into a tax-deferred investment. Tax-deferred investment earnings are not reportable for social security taxation purposes. You will not only prevent your social security check from being taxed, but you will save taxes on investment earnings as well.

Gary Ellis, MBA, CFP