TAX LAW CHANGES; BUSINESSPERSONS, LOW-INCOME FAMILIES ARE TARGETED

Let the taxpayer beware, especially the taxpayer who qualifies for an earned income credit.

This year, the Internal Revenue Service is making sure everyone who gets the credit -- usually unmarried heads of household making less than $24,000 -- really qualifies for it. The most tax fraud last year was related to earned income credits.

"People claimed dependent children they didn't have, or children they aren't qualified to claim," Tax Clinic owner Jimmy Randle said. "A couple might be divorced with the man paying child support. He may think he can claim the children, but only the parent who has custody can claim them without written consent."

Because the IRS wants to check every earned income credit, the whole 1994 tax process is slower than in years past. Even on simple forms, the IRS checks Social Security numbers with the Social Security Administration's records.

For example, returns are delayed because a husband and wife file jointly, but the woman never changed her name with the Social Security administration when she married. The couple's form will be returned this year, even if it went through just fine before.

Lee Kimmel, district manager for H&R Block, said the promise of a refund check in 24 hours or less is unrealistic this year because of the changes. Six years ago, Rapid Refund changed the way people thought about taxes. Instead of putting things off, they began rushing to electronic filing locations to get their money faster, but at a higher fee.

Anyone qualifying for an earned income credit may get his actual withholding back quickly, but the credit won't come until three or more weeks later.

"We had no problem getting refunds within 24 hours or less last year," Kimmel said. "This year, we haven't done that."

Another result of the Internal Revenue Service's stricter regulations is that banks won't make refund anticipation loans this year. Before, they made loans based on the promise of a refund check in a few weeks. It wasn't good business, because some customers lied on the forms and didn't qualify for their full refund or owed the IRS money. Then banks had to take those customers to court.

But the changes go further than earned income credits and refund anticipation loans. Jerry Stone of Stone Tax and Accounting Service listed nine main changes affecting his customers.

-- The business meals and entertainment deduction went from 80 percent to 50 percent.

-- No club dues are deductible, even if business related.

-- Last year, people paid a Medicare tax of 1.45 percent on their income up to $135,000. Now they pay the tax on all their income, no matter how much.

-- Moving expenses no longer deductible include travel, lodging and meals. The cost of buying a new home or selling an old one isn't deductible, either.

-- If a married couple made over $44,000 in 1994, 85 percent can be taxed. Last year, it was only 50 percent.

-- In 1993, the highest tax rate was 31 percent. Now it's 36 percent with a 10 percent surtax on high-income taxpayers.

-- The amount of money per day that can be deducted for business meals while traveling now depends on the city. In St. Louis, it's $38 per day. In Cape Girardeau, $26 per day.

-- If a taxpayer contributes over $250 in one day to a charitable organization, he must have proof from that organization.

It may seem like a lot, but Stone said the number of changes for 1994 was about average. Look out for 1995, though.

"The Republicans and Democrats seem to be having a contest to see who can give the most tax breaks," Stone said. "This time, the average taxpayer will benefit."

The proposed revisions for 1995 include more exemptions for children and no tax on Social Security benefits for retired people making less than $30,000 yearly.