Preparing for the New Tax Forms

Be prepared for a more complicated tax return for 2009, even if you have an uncomplicated tax situation. New forms, triggered by new tax breaks and rules, mean few people will have simple, straightforward returns.

One major change is a new Schedule L, which in its draft form had 21 steps. Schedule L will be for taxpayers who take the standard deduction. This is ironic, because taking the standard deduction instead of itemizing deductions is supposed to make your return simple and straightforward. You don’t have to track all the itemized expenses (charitable, medical, investment, state and local taxes), because you won’t deduct them separately.

But to be fair to non-itemizers, Congress allows even those who don’t itemize to deduct three deductions that used to be only for itemizers. One of those deductions is for state and local real estate taxes (up to $500 for single taxpayers and $1,000 per married couples). Another is for sales taxes paid on the purchase of a new motorcycle, auto, or light truck purchased between Feb 17 and Dec. 31, 2009, up to a cost of $49,500. This deduction is phased out for singles with AGI above $125,000 and married couples with AGIs above $250,000. The third deduction is for losses from federally-declared disasters in 2008, 2009, and 2010. You also have to file Form 4686 to take that deduction.

You have to complete the Schedule L to claim one or more of these deductions.

One new form many retirees will file is Schedule M, “Making Work Pay and Government Retiree Credits.” The economic stimulus law enacted in February 2009 gave workers a $400 tax credit. The credit is claimed on the 2009 tax return, but the money is received during the year because wage withholding was reduced by a few dollars each paycheck during the year. To give retirees stimulus cash, the government also sent a $250 check to each Social Security recipient.

But an income cap was put on the credit. It is not available to single taxpayers with adjusted gross income above $75,000 and married couples with AGI above $150,000. In addition, Social Security recipients who also work shouldn’t receive a double benefit from a $250 check and the $400 tax credit.

The result is new Schedule M to be filed by those who file Form 1040 or 1040A, and a shorter version for those filing Form 1040EZ. You need to file Schedule M to show you are entitled to the $400 credit. Otherwise, you won’t be allowed to claim the credit and will in effect repay the stimulus cash.

Even people not affected by the new provisions will see a change. Normally Schedule B for reporting income and dividends is on the back of Schedule A. But the sales tax deduction for new vehicles also is allowed on Schedule A by itemizers and requires a new worksheet that now takes up the back of Schedule A. Schedule B is on a separate sheet for 2009 returns.

We don’t want you to be surprised by these changes in the tax forms or complete them improperly. We certainly don’t want you to overpay taxes because of the new forms.

December 2009. RW