Taxpayers look for changes in tax code to add to refunds

Armed with sales receipts, Social Security forms, supplemental income papers and a litany of other documents, a number of older residents set out for the Cape Girardeau Senior Center Wednesday morning.

The Senior Center had AARP tax aides on hand to help seniors fill out and file their tax information for no charge.

"Can't you tell it's tax time?" said 79-year-old Clarence Greaser Jr. as he waited in line.

The end of January marked the official start of the 2005 tax season as W-2s, 1099s and other financial statements were distributed to taxpayers. That information will make most glad -- 80 percent of taxpayers will get a refund this year.

Changes in this year's tax code could add to those refunds. The biggest change, according to Teresa Robinson of the H&R Block office in Cape Girardeau, is that filers may now choose to deduct their state sales tax instead of state income tax if they itemize their personal deductions. This is the first time in two decades that this option has been available.

The American Jobs Creation Act of 2004, which applies only for this tax season and next unless Congress decides to extend it, will mean big savings for the seven states without income tax.

But in Missouri, which has income taxes, it could still be to taxpayers' advantage to deduct sales tax if they made a major purchase, such as a boat, car or home-building materials.

"People don't generally keep those kind of receipts, so it probably will be a more-used option next year," Robinson said. "But if you bought an expensive car or something, you might look into it."

The taxpayer can deduct the sales taxes he actually paid last year or use an estimate created by the Internal Revenue Service and listed in Publication 600. The IRS estimates, available online at www.irs.gov, are based on a filer's state, income and family size.

Filers who pay local sales taxes on top of a state sales tax will need to complete a worksheet in the publication to figure their deduction. People who itemize can write off state and local sales taxes, or state and local income taxes, but not both.

The IRS uses the following example: A married couple filing jointly paid $3,400 in state and local income taxes in 2004. They determined that they paid $2,800 in state and local sales taxes, not including a $900 sales tax on a new car. The IRS sales tax table says they may deduct $2,944.

Change for military

Another change, Robinson said, is that for the first time members of the military will have the option of including combat pay when they figure out eligibility for the earned income credit. Combat pay isn't taxable, but including the combat pay in the calculation may increase the credit.

But the law stipulates that soldiers have to include all combat pay or none at all. Just enough can't be included to get the maximum credit.

There are other changes, including donations to the Asian tsunami relief efforts made before Jan. 31 that can count for 2004 taxes. Usually, charitable donations through Dec. 31 are eligible, but an exception is being made this year.

Also this year, more taxpayers can deduct their IRA contributions because the government raised the salary cap. For example, singles making as much as $45,000 a year and married couples earning as much as $65,000 a year can deduct as much as $3,000 per person. In 2003, the salary limits were $40,000 and $60,000 respectively.

Good news for those who drive as part of their work: Business mileage that has not been reimbursed can be deducted at 37.5 cents per mile, up from 36 cents per mile last year. Mileage for medical purposes or for charity can be deducted at 14 cents per mile.

smoyers@semissourian.com

335-6611, extension 137