A Taxing Season
Delayed refunds, incomplete forms, catch-up instructions. How to protect yourself.
The outgoing Congress sure made things difficult for this year’s tax-filing season. By waiting until their lame-duck session in December to pass legislation reinstating several tax breaks, the lawmakers put the IRS in a pickle. Everyone knew Congress wouldn’t really let a group of popular tax savers that expired at the end of 2005 die. But the legislators procrastinated until after the IRS had sent this year’s tax forms to the printer before officially resurrecting the breaks.
That means the money-saving provisions — including the chance for some taxpayers to deduct the sales taxes they pay and a deduction for college tuition — are nowhere to be found on the tax forms. The IRS spent the end of 2006 and the early weeks of 2007 printing extra instructions and reprogramming its computers. In addition to the basic set of instructions you received right after Christmas, by now you should have received a second set telling you how to claim the last-minute additions — by entering your write-offs on lines meant for other deductions. The snafu created confusion for all and delayed refunds for the millions of taxpayers who filed in January. The IRS refused to accept electronic returns that included revived tax breaks until February.
What It Means to You
The key is not to allow a messy filing season to mess up your tax return. If you use a professional tax preparer, he or she should be up-to-date with the latest rules. If you use tax software, such as Intuit’s TurboTax (which includes money-saving advice from Kiplinger) or online software that taxpayers with incomes under about $50,000 can get for free at irs.gov, the last-minute changes are built into updates you can download. If you’re a do-it-yourselfer, you should have received a second set of instructions from the IRS. Or visitirs.gov for up-to-date information. We’ll also be posting daily tax-saving tips on kiplinger.com.
In addition to the hidden tax breaks, this year’s forms include a couple of changes to watch for. One will save you money: a refund of an excise tax on long-distance telephone service that traces its history back to 1898 (it helped pay for the Spanish-American War). After losing several court cases on the legality of the levy, the IRS has agreed to refund the tax collected since March 2003.
Rather than search old phone bills to pinpoint how much you actually paid, IRS instructions explain how to get a refund of between $30 and $60, based on how many exemptions you claim on your tax return. All told, the government estimates that telephone tax refunds will save taxpayers between $8 billion and $10 billion.
If, like most taxpayers, you have a refund coming, this year you can ask the IRS to direct the money to as many as three accounts. For example, you can have part of your refund electronically deposited into a savings account, part to an IRA, and part to a health savings account.
Finally, don’t follow Congress’ procrastinating ways. If you have a refund coming, tackle your return and file as soon as possible. We expect refunds to average more than $2,200 this year. The sooner you file, the sooner you’ll get your share.
Kevin McCormally is the editorial director of Kiplinger’s Personal Finance magazine. Visit kiplinger.com.
