The good news is that taxpayers have more time to file this year. The bad news is they still have a deadline.
Because the 15th of April falls on a Saturday, the Internal Revenue Service is giving taxpayers until midnight on the 17th (Monday) to have their forms completed and filed.Looking over the tax law, there were some important changes that taxpayers should be aware of when preparing returns for 1988.
A few of the more important include:
- There is a new tax rate for 1988. The Tax Reform Act of 1986 lowered the tax rates and changed the tax rate structure. For tax years beginning in 1988, the two basic tax rates are 15 percent and 28 percent. However, if your taxable income is more than $35,950, your tax may be adjusted to phase out the benefit of the 15 percent tax rate.
The benefit of the 15 percent tax rate is phased out by increasing your tax by 5 percent of part of your taxable income. This could result in the application of a 33 percent rate to part of your taxable income.
If your taxable income is more than $89,560, your tax may also be adjusted to phase out the benefit of your exemptions.
- Higher exemption amount. For 1988, you are allowed a $1,950 deduction for each exemption to which you are entitled.
- Standard deduction. For most taxpayers, the standard deduction is higher in 1988 than it was in 1987. The amount generally depends on your filing status, and whether you are age 65 or older or blind. This increased benefit reduces the need for many taxpayers to itemize their deductions.
- Earned income credit. If you earned income and your adjusted gross income are both less than $18,576 and you have a child who lived with you for more than half the year, you may be entitled to a refundable credit of up to $874.
- Child and dependent care credit. Beginning in 1988, you can no longer include the expenses of sending your child or other dependent to an overnight camp when figuring this credit.
- Capital gains holding period. If you purchased a capital asset after 1987, you will have long-term capital gain or loss on the sale or other disposition of the asses only if you hold it for more than one year. If you hold a capital asset purchased after 1987 for one year or less, your capital gain or loss is short term.
- Standard mileage rate. For 1988, the standard mileage rate for the first 15,000 miles of business use of a car is 24 cents a mile. Using the standard mileage rate depreciation is considered to be allowed at the rate of 10.5 cents per mile.
- Interest. Recent legislation changed the rules concerning the home mortgage interest deduction and provided for the gradual elimination of the deduction for personal interest expense. Changes for 1988 include:
- Personal interest. Personal interest, such as interest on car loans, credit cards and personal loans, is not fully deductible. You can deduct only 40 percent of the personal interest you paid in 1988.
- Beginning in 1988, the rules for the home mortgage interest deduction have changed. Generally, if you got a loan before Oct. 14, 1987, that was secured by your main or second home, you can deduct all the interest.
If you got a loan after Oct. 13, 1987, that was secured by your main or second home and you used the funds to buy, build or improve that home, you can deduct all of the interest if the loan is $1 million or less. You can also deduct all of the interest on an additional $100,000 of loans secured by your main or second home.
- Educational assistance program. Beginning in 1988, you may have to include in income all educational assistance payments provided to you by your employer under an educational assistance plan. You may no longer be able to exclude the first $5,250 of benefits. However, you may still be able to deduct certain educational expenses.
- Group legal services plan. Beginning in 1988, you may have to include in income amounts paid by our employer on your behalf for a qualified group legal services plan. You may also have to include the value of benefits you received under the plan.
And, there are some important reminders for taxpayers that came from the Tax Reform Act of 1986.
Among the repealed items were:
- Regular investment credit.
- 3-year rule for tax-free recovery of contributions to employee annuities starting after July 1, 1986.
- $1,000-a-year exclusion of interest on installment proceeds of life insurance. This is for amounts received by a surviving spouse for deaths occurring after Oct. 22, 1986.
- Income averaging.
- Dividend exclusion.
- 60 percent deduction for capital gains.
- Deduction for state and local sales taxes.
- Deduction for qualified adoption expenses.
- Deduction for married couples when both work.
- Credit for political contributions.
- Extra exemptions for age and blindness. These exemptions have been replaced by a higher standard deduction for taxpayers who are 65 or older or blind.