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FS-2007-4, January 2007
Following the enactment of late tax legislation in December,
taxpayers using a paper Form 1040 will need to follow special
instructions if they are claiming any of three key deductions.
The late changes affect a number of areas of tax law, but the
most significant effect on taxpayers involves the state and local
sales tax, higher education tuition and fees, and educator
expenses.
The major forms for the filing season (Forms 1040, 1040A,
Schedule A&B, and instructions) went to print in early November
and reflect the law in effect at that time. The instructions contain
a cautionary note to taxpayers that the legislation was pending at
the time of printing. Even though these forms were printed before
the law changed, the IRS emphasized that taxpayers should use the
current Form 1040 or file electronically to claim the three key
“extenders” deductions.
However, the IRS will not be able to process tax returns claiming
these three deductions until early February because updates are
being made to tax processing systems. Neither paper nor electronic
tax returns claiming these deductions should be filed during this
period.
When processing begins for these deductions, the IRS encourages
taxpayers to file electronically, which will reduce the chance for
making errors on these new provisions.
For those filing a paper 1040, there are special steps they will
need to follow to claim the deductions:
State and Local General Sales Tax Deduction:
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The deduction for state and local general sales taxes will be
claimed on Schedule A (Form 1040), line 5, “State and local income
taxes.” Enter "ST" on the dotted line to the left of line 5 to
indicate you are claiming the general sales tax deduction instead
of the deduction for state and local income tax.
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The IRS also will issue Publication 600 for 2006, which
includes the state and local sales tax tables, a worksheet and
instructions for figuring the deduction.
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This option is available to all taxpayers regardless of where
they live, though it’s primarily designed to benefit residents of
the eight states without state and local income
taxes.
Higher Education Tuition and Fees Deduction:
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Taxpayers must file Form 1040 to take this deduction for up
to $4,000 of tuition and fees paid to a post-secondary
institution. It cannot be claimed on Form 1040A.
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The deduction for tuition and fees will be claimed on Form
1040, line 35, “Domestic production activities deduction.” Enter
"T" in the blank space to the left of that line entry if claiming
the tuition and fees deduction, or "B" if claiming both a
deduction for domestic production activities and the deduction for
tuition and fees. For those entering "B," taxpayers must attach a
breakdown showing the amounts claimed for each
deduction.
Educator Expense Adjustment to Income:
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Educators must file Form 1040 in order to take the deduction
for up to $250 of out-of-pocket classroom expenses. It cannot be
claimed on Form 1040A.
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The deduction for educator expenses will be claimed on Form
1040, line 23, “Archer MSA Deduction.” Enter "E" on the dotted
line to the left of that line entry if claiming educator expenses,
or "B" if claiming both an Archer MSA deduction and the deduction
for educator expenses on Form 1040. If entering "B," taxpayers
must attach a breakdown showing the amounts claimed for each
deduction.
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