Dealing With Defective U.S. Income Tax Forms

The silly folks in Congress amended the tax laws for 2006 after the I.R.S. had already finalized 2006 tax forms, extending several tax breaks that were due to expire. What is a poor taxpayer to do? The I.R.S. says it won't be qable to process claims for these extended tax breaks until early Feb., 2007 (presumably to allow updates of I.R.S. computer software). But, you can claim them on Form 1040 if do the following:

Sales taxes. An individual claims the deduction for state and local general sales taxes on Schedule A (Form 1040), line 5, “State and local income taxes” by entering “ST” on the dotted line to the left of line 5 to indicate he is deducting sales taxes instead of state and local income taxes. IRS will be mailing Pub. 600, which contains the state and local sales tax tables and instructions for claiming the sales tax deduction on Schedule A (Form 1040), to 6 million taxpayers who will receive the 2006 Form 1040 package in early January. IRS also has posted Pub. 600 on its website (see article in yesterday's Newsstand e-mail entitled "IRS issues optional sales tax tables for use in figuring sales tax deduction for 2006").

Tuition deduction. An individual 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. An individual claims the deduction on Form 1040, line 35, “Domestic production activities deduction” by entering “T” on the dotted line to the left of that line entry. An individual claiming both a deduction for domestic production activities and the deduction for tuition and fees should enter “B” on the dotted line. Those entering “B” must attach a breakdown showing the amounts claimed for each deduction.

Educator expenses. Educators must file Form 1040 in order to take the deduction for up to $250 of out-of-pocket classroom expenses under Code Sec. 62(a)(2)(D). It cannot be claimed on Form 1040A. An individual claims the deduction on Form 1040, line 23, “Archer MSA Deduction” by entering “E” on the dotted line to the left of that line entry. An individual claiming both an Archer MSA deduction and a deduction for educator expenses should enter “B” on the dotted line. Those entering “B” must attach a breakdown showing the amounts claimed for each deduction.

In practice, relatively few Coloradoans who itemize come out ahead claiming a sales tax deduction rather than an income tax deduction, but the tuition break is relevant to almost everyone who is in college or has a child in college, and most K-12 educators have out of pocket classrom expenses, so this may be the year that thye need to file form 1040 rather than the simplified form 1040A in many cases.

Good luck!