DON'T WAIT TILL APRIL TO TARGET TAX BREAKS
By DOLORES KONG
11/25/2001
The Boston Globe
Most people don't think about their taxes until they
have to, say, around mid-April.
But now's the time to make some year-end tax-saving
moves, particularly if you want to take advantage of
new federal and state tax breaks.
At the top of the list of Massachusetts changes worth
doing some tax planning around in 2001: the state's
new charitable contributions deduction, and a real
estate tax credit for certain homeowners and renters
65 and older.
If you've been thinking about donating more than usual
this giving season, especially since Sept. 11, the new
state charitable contributions deduction couldn't have
come at a better time.
Mail your check to your favorite charity or charge the
amount on your credit card by Dec. 31, and you'll be
able to deduct the donation on your 2001 Massachusetts
tax return next April.
The state deduction is generally limited to 50 percent
of your adjusted gross income, as is the federal
charitable contributions deduction. But one advantage
the Massachusetts tax break has over the federal one:
Taxpayers don't need to itemize their deductions to
claim them.
That means that for the first time, Massachusetts
taxpayers who don't itemize for federal tax purposes
can still get a break on state taxes for contributions
made. And since about 75 percent of taxpayers don't
itemize, this tax break could benefit a lot of people.
The other new Massachusetts tax break that could
benefit some people age 65 and older: a refund able
"circuit breaker" real estate tax credit.
The credit is for a certain portion of real estate
taxes that elderly homeowners pay directly, or that
renters pay indirectly through their landlords.
Calculated on a new Schedule CB (for circuit breaker),
the credit is limited to the amount that real estate
tax payments exceed 10 percent of a taxpayer's total
income, but no more than $385. And it's limited to
taxpayers who meet certain income qualifications - no
more than $41,000 if single, $51,000 if head of
household, $61,000 if married filing jointly - among
other restrictions.
So if you think you qualify and wonder if you can
maximize the credit for 2001 by perhaps making an
earlier-than-usual real estate tax or rental payment
before the end of the year, you can check out the
draft version of Schedule CB at the Department of
Revenue's Web site, www.massdor.com.
And at the federal tax level, there are both new and
time-tested strategies worth considering at this time
of year, according to RIA, a New York-based provider
of software and information to tax professionals.
Some of the federal tax-saving moves with particular
relevance for 2001, according to RIA and other tax
specialists:
With the volatile stock market, this may be a good
time to take a close look at your portfolio, to see if
there are some losing investments you want to get out
of while at the same time preserving your overall
portfolio strategy.
But in selling your losers, be careful of the
so-called wash-sale rule. If you had just bought the
same or substantially identical investment within 30
days before you sold the loser, or if you buy back the
loser within 30 days after selling it, the Internal
Revenue Service does not allow you to deduct the loss.
You may be able to realize the loss later, however, by
incorporating it into the cost basis of the
replacement investment.
With a new higher education expense deduction
available in 2002, some taxpayers may want to defer
paying for courses until then, if they think they'll
get more out of the new deduction than the existing
Hope and lifetime learning credits.
This new deduction results from the new tax law signed
by President Bush and can be claimed by taxpayers
whose incomes don't exceed a certain level, whether or
not they itemize deductions.
In 2002 and 2003, a maximum of $3,000 in tuition and
fees paid to an eligible educational institution is
deductible. In 2004 and 2005, a maximum of $4,000 is
deductible. The deduction is scheduled to last only
between 2002 and 2005, unless Congress extends it.
The new deduction cannot be claimed if a Hope or
lifetime learning credit is claimed for the same
student in the same year.
Tax preparation isn't poetry, but "April is the
cruellest month" from T.S. Eliot's "The Waste Land"
has often been used to describe that tax-deadline
month.
Now there's news from the IRS about paid tax preparers
that suggests this phrase from Robert Frost's "The
White-Tailed Hornet": "To err is human."
According to statistics through Nov. 2, these are
among the top errors made by paid preparers, some of
which the IRS could fix, but some of which led
exemptions or credits to be disallowed:
- Spouse's Social Security number missing or didn't
match Social Security Administration rec ords.
- Dependent's Social Security number or name didn't
match IRS or SSA records.
- Primary taxpayer's Social Security number wrong or
illegible.
- Child's age exceeds limit for child tax credit.
- Earned income credit figured or entered incorrectly.
- Refund amount or amount owed figured incorrectly.
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