YOUR ROAD MAP TO TAX TIME.
For Christmas, Marcus and Kimberly Jackson wouldn't mind this bonus from Uncle Sam: Lower taxes.
They believe it's important to pay taxes. But sometimes the government goes overboard, they say, such as when it taxes state or local tax refunds.
On the Valencia couple's wish list are tax breaks for parents, tax cuts that lower the cost of living and a tax benefit for homemakers.
``We're being taxed too much,'' said Marcus Jackson, a trucking consultant whose wife stays home to take care of their two young children.
It may not be a Christmas gift, but the government is about to grant some of the Jacksons' wishes.
Starting mostly next year, a series of tax cuts will take effect under the Taxpayer Relief Act of 1997 that will benefit parents, investors, students, home-sellers, home businesses and the self-employed.
The long-term capital gains tax rate has been lowered, the tax-free profit allowed from the sale of a home has been increased and students can now offset their educational expenses with an annual tax credit.
But not everyone is getting a tax break. While many of the cuts benefit lower- and middle-income taxpayers, high-income individuals and married couples filing separately won't see as much relief.
Air travelers, mainly, are hit with tax increases, and smokers are targeted as well. The act calls for $56 billion in total tax raises.
The 1997 act, signed into law in August, is being touted as the most sweeping tax package since the 1981 tax cuts under Ronald Reagan. Still, its $152 billion in tax cuts aren't expected to have much impact once the dust settles.
``Overall, this act should reduce on a net basis the overall taxes. But if you compare it to other major tax reform acts, it has significantly lower benefits,'' said Bill Amon, a tax partner at Deloitte & Touche in Los Angeles.
There are no across-the-board cuts, and the act will whittle overall taxes only by a net $96 billion, slowly phased in over five years.
The 1981 tax package cut taxes by $1 trillion in today's dollars, he said.
``There aren't a lot of cuts,'' observed Joe Keller, a tax partner at Arthur Andersen in Los Angeles, explaining that as a comparison the government expects to collect $9 trillion in taxes - or roughly 94 times what's being saved - over the same period.
``The biggest cut is the child care credit, and it probably won't do anything to spur the economy,'' he added.
Taxpayers on the average will only see a 1 percent cut, Keller said.
While the act is supposed to help those with lower incomes, they may not be able to afford to take advantage of some tax benefits, said Mark Luscombe, principal analyst for federal and state taxes at CCH Inc., a tax and business information software firm in Riverwoods, Ill.
For instance, the expanded flexibility for IRA tax deductions is beneficial, but lower-income families often don't have money to spare to fund an Individual Retirement Account, he said.
An increase in the tax-free profit allowed on a home sale is good news, but many lower-income taxpayers don't even own a house, Luscombe added.
Amon would have liked to have seen more tax breaks for corporations.
``There should have been more incentives for corporations to make investments for capital expansion, more rapid depreciation or a flat write-off for capital expansion,'' he said.
However, any tax cut is better than nothing, Keller said.
Among the act's highlights:
The tax rate for long-term capital gains will decrease from 28 and 15 percent to 20 and 10 percent.
The home sale tax-exemption increases from a one-time $125,000 exclusion for those 55 and older to multiple exemptions of up to $250,000 for single taxpayers and $500,000 for married couples filing jointly.
A new child tax credit shaves $400 per dependent 16 years old and younger in 1998, and $500 per child in 1999 and thereafter.
The expansion of IRA laws allows more taxpayers to deduct their annual contributions of up to $2,000 per person.
The creation of education incentives helps parents pay for their children's higher education.
New rules will allow a larger inheritance to be passed on to heirs free of taxes.
The broadening of home office deduction laws allows more businesses to take exemptions.
The self-employed and their families can benefit from the establishment of higher tax deductions on health insurance costs.
Stay on course: Financial ABCs
Adjusted gross income: All income - including wages, salaries, tips and taxable interest - minus allowable adjustments such as IRA contributions. The AGI is calculated before subtracting itemized deductions and personal exemptions.
Asset: A property or investment, such as real estate, stock, mutual fund, and equipment that has monetary value when sold.
Beneficiary: A person to whom one gives or leaves his assets.
Capital gain or loss: A taxable gain or loss resulting from the sale of property or financial asset such as a stock, bond or mutual fund.
Dependent: A person supported by the taxpayer, such as a child, that may be claimed as an exemption on a tax return.
Earned income: Money received for working.
Estate: At the time of death, the value of the deceased's assets minus loans and liabilities.
Individual Retirement Account: Also called IRA. A retirement account into which anyone with sufficient employment income or alimony may contribute. The maximum contribution is $2,000 a year.
Tax credit: A benefit that reduces your tax bill dollar-for-dollar. It's not the same as a tax deduction.
Tax deduction: An expense subtracted from income to lower taxable income. Mortgage interest, property taxes and most retirement account contributions are examples of tax deductions.
Tax-deferral: Legally delaying the taxes owed. For instance, contributions to retirement accounts generally grow tax-deferred, meaning the account holder doesn't pay taxes on it until the money is withdrawn.
Tax year: Usually a 12-month period that starts on Jan. 1 and ends on Dec. 31. In general, taxes for a certain tax year are paid by April 15 of the next year. Some businesses use tax years that start and end at other times of the year, such as July 1 through June 30.
Taxable income: The amount of income on which taxpayers actually pay tax. To get this figure, subtract applicable deductions, exemptions and credits from adjusted gross income.
SOURCE: Eric Tyson, David J. Silverman, authors of ``Taxes For Dummies''
Should you get lost...
For more information, contact the IRS at 1-800-829-1040
To get the ``Individual Income Tax Guide,'' which includes changes in tax laws, call 1-800-829-3676. Ask for publication 17.
To get the new tax forms by fax, call 703-368-9694.
Or, you can access the IRS web site at www.irs.ustreas.gov for highlights of the Taxpayer Relief Act of 1997 as well as to download forms and publications.
Another web site that explains the Act is www.cpajournal.com/tra97.htm
Taxpayers without computers or online capability should check with the public library for Internet access.
2 Drawings, 2 Photos
Drawing: (1--Color) no caption (Tax maze)
(2--Color) no caption (IRS)
Doug Griswold/Knight-Ridder Tribune Graphics Network
Box: (1) Stay on course: financial ABCs (See Text)
(2) Should you get lost... (See Text)
|Printer friendly Cite/link Email Feedback|
|Publication:||Daily News (Los Angeles, CA)|
|Article Type:||Statistical Data Included|
|Date:||Dec 14, 1997|
|Previous Article:||BRIEFLY : FIRE IN SHERMAN OAKS DESTROYS PRICEY CARS.|
|Next Article:||EDUCATION NOW EASIER; BREAKS HELP FAMILIES, STUDENTS PAY FOR COLLEGE.|