Tax changes to ease bite on public

Author: Pamela Brust

Published: February 22, 2004

PARKERSBURG - Individual taxpayers will generally find their 2003 taxes are lower, thanks to various laws enacted in recent years.

"In general, people are going to have smaller tax bills this year," said Chris Kerns, spokesman for the U.S. Internal Revenue Service. "Congress passed legislation last year that lowered the tax rates on everyone by about 2 percent. So, in general, you are going to pay less taxes. We anticipate people will get a little larger refund than in the past. Tax bills have gone down and employers were slow to change their withholding rates."

Eighty percent of individual tax returns are refund returns, with the average refund last year being $2,000, Kerns said.

In addition to eliminating the so-called marriage penalty and increasing the child tax credit, there have also been changes in the long-term capital gains rates and some changes that could help small business.

John Kiger, who has a master's degree in professional accountancy, with offices on Market Street, said long-term capital gain rates have gone from 20 to 15 percent and, for some taxpayers, as low as 5 percent. Capital gains greater than 12 months are long-term capital gains, Kiger explained.

"A capital gain is a profit/gain on a capital asset, capital item, like stocks, mutual funds, investment property. When computing a tax liability, they will take the amount of the gain and tax it at the long-term rate, so you have a reduction of 5 percent, saving money on that portion of your income that is attributable to capital gains. The change was implemented to give people an incentive to invest more in the stock market, because the tax implications are not as tough as they have been," he said.

Small businesses also got a little break this year.

"As an incentive for capital expenditures, expensing increased to $100,000 from $24,000 - that is what they can claim as depreciation on items like equipment, computers, tractors, what you would use in the course of your business, not including real estate," Kiger said.

Some taxpayers in a slightly higher income bracket should keep an eye on the Alternative Minimum Tax Exemption (AMT) amount which rose to $40,250, $58,000 if married filing jointly or qualifying widow(er); $29,000 if married filing separately, according to the IRS.

Steve Sandifer, Sandifer Tax Services Inc., an enrolled agent, said the Urban-Brookings Tax Policy Center estimates by the end of this century at least 30 percent of the taxpayers in this country will be affected by the AMT, and nine out of 10 earning between $100,000-$105,000 will be affected by it.

The AMT was passed in 1969 by Congress. It stayed on the books and over the years was not adjusted for inflation. With today's economy, higher incomes and two-wage-earner families, more and more people are going to find they are affected, particularly in states with higher state income taxes or higher property taxes, which are not deductible under AMT, Sandifer said.

"The AMT is something people are going to want to be prepared for," Sandifer said.

Taxpayers can now obtain every tax form from the IRS Web site, www.irs.gov, along with instructions for the forms. The IRS encourages electronic filing. Kerns said the IRS anticipates 50 percent of those who file a tax return will electronically file.

"It speeds up your refund. You get it in two weeks, probably 10 days if it is direct deposited to a bank account. With a paper return, it takes four weeks to get a refund," Kerns said.

Some of the most common errors taxpayers make are just simple math mistakes, officials said.

"Simple math errors are the number one error on returns. The error rate in electronic filing is much less because you have a computer doing the math and not a human being," Kerns said.

Lonnie Z. Bennett, tax professional with Bennett Tax Services in Belpre, noted one of the main concerns is the accuracy of information.

"When we prepare a return and transmit it to the IRS, they check for accuracy of Social Security numbers, names, year of birth, that sort of thing, so we want to have that information correct. A typical problem area is women who have divorced and switched back to their maiden name, but their Social Security number is still in their married name. The IRS does a check with the Social Security Administration every time we file, and that information has to match," Bennett said.