Medford mail tribune., March 27, 1960, Image 45

Jamlly WieeJcly March 27, mo
accounting for some deductions but they're legal
and you owe it to yourself to know them all
By MILTON CHRISTIE, Editor, Kiplinger Tax Letter
butions to the local volunteer fire department, and
other small charitable donations. If you bought
something on the installment plan last year, re
member that the interest you paid is deductible.
And if the bill of sale listed only a "carrying
charge," you may assume that 6 percent of the
average unpaid balance during the year was inter
est (unless the carrying charge for the year was
smaller, which is unlikely). If you prepaid a mort
gage last year because you sold your old home or
got a cash windfall, there's a good chance that the
mortgage holder charged you a-penalty for it, per
haps 1 percent of the payment. This also is deduct
ible as interest.
There's More to Medical Expenses
Than Meets the Eye
The rule for deducting medical bills is that only
the excess over 3 percent of your income is de
ductible, unless you are 65 or over. This has the
effect of reducing the amount of medical deduc
tions, if any, as your income rises. But as your
income goes up, the value of a deduction likewise
increases, so don't overlook any possible deduc
tions in this area.
Accident- and health-insurance premiums, for
example, are just as much a medical expense as
a doctor's or dentist's bill. (But if the insurance
company reimburses you directly for a medical
expense, don't also deduct the expense itself.) If
you had to take a taxi to the doctor's office for
medical treatment or to visit your sick child in the
hospital, the taxi fare is a medical expense, too.
In fact, just a few months ago, the U.S. Tax Court
allowed a person to deduct the cost of an airplane
trip from Los Angeles to New York to visit his
doctor for a checkup.
Other outlays which can be figured in your med
ical expenses include eyeglasses, hearing aids,
false teeth, air conditioners bought on doctor's or
ders, trips to Arizona or Florida ordered by the
doctor, and even an elevator installed in your
house if you're not permitted to climb stairs. But
such a home improvement, to be deductible, must
not increase the value of your house.
Tally your drug bills, too, since any amount
above 1 percent of your income can be added to
your other medical bills.
Who's an Exemption, Who's Not?
The $600 personal exemptions allowed for your
self and your dependents are well known, yet
there is a fairly common exemption situation that
is frequently overlooked. It happens when aged
parents are supported by more than one child and
when none of them contributes more than half the
support. In most cases, a taxpayer must supply at
least 50 percent of a dependent's support in order
to claim him, but the law makes an exception
where a number of persons chip in and between
them pay more than 50 percent. In such a case,
they may decide which of them will claim the ex
emption, as long as the one who actually claims it
paid more than 10 percent of the support. This
taxpayer then must file with his tax return a writ
ten declaration (Form 2120) from each of the other
persons, but that's all the red tape involved.
If a dependent lives with you, you can figure the
fair rental value of his lodging quarters as part of
your contribution to his support.
There is another not-infrequent situation which
may enable you to get a dependency exemption
you haven't been claiming. Say your father, who
is retired, has an income of $1,000 a year from his
Social Security pension. Suppose you contribute
another $900. Ordinarily you would lose the ex
emption for him since you did not pay more than
half his support. However, if he saves $150 of his
pension, the $900 you contribute will constitute
more than, half his support.
You could even increase the amount you con
tribute by giving him part of the savings you real
ize on your taxes.
Don't forget, too, that the $600 income test which
disqualifies a person as a dependent does not apply
to children under 19 or those over 19 if they are
students. No matter how much they earn, their
parents can claim them as dependents if they pro
vide more than half their support. An additional
break here is that the children also get a personal
exemption for themselves.
What Tax Credits Should
You Be Aware Off?
There are two kinds of tax credits on your re
turn which you should be familiar with. One ap
plies only to persons 65 or over and gives them a
reduction in taxes equal to 20 percent of the first
$1,200 of income they get from annuities, interest,
rent, or dividends. If both husband and wife are
at least 65, this benefit could amount to as much
as $480. The credit is reduced, however, if a Social
Security pension is received.
The other credit applies to dividends on stocks.
What it does, in short, is let you deduct from your
tax an amount equal to 4 percent of your dividends
after the first $50, which is not taxable at all. Inci
dentally, if. you're married and all your stocks are
registered in your name, think about putting some
in your wife's name or registering thetu jointly.
This will let you exclude up to $100 of dividends
$50 for each of you from your taxable income.
If you held more than one job last year, you
might well be in line for another tax credit. If you
earned more than $4,800 for the year, you prob
ably paid too much Social Security tax. Any
amount over $120 is too much, and you are en
titled to get it back. You can either get a refund
or apply it against any income tax you owe.
Three Tax Forms Still Mean
One Headache!
Which form you use to file your return usually
won't make much difference on your tax, although
it can make a difference in preparation time.
The three basic forms are 1040A, 1040W, and
1040. The 1040A is the easiest to use, but not every
one may use it. It's merely a small punch card, and
the district revenue director will compute your tax
on it if you don't want to. But its use is confined
to those who had less than $10,000 income, of which
no more than $200 was income on which no tax
was withheld, such as non-withheld wages, divi
dends, or interest. Those who use 1040A may not
itemize their tax deductions, claim business ex
penses, exclude sick pay, take the dividend credit,
or any number of other things.
Form 1040W is new this year and consists of
only two pages. It is designed for those whose in
come comes only from salary, wages, tips, bonuses,
etc., regardless of how much it is, and who have
no more than $200 of interest and dividends. This
form allows you to itemize deductions if you want.
Form 1040 is the longest and the most trouble
some. But it also is the form without any restric
tions, the one that lets you claim anything to which
you are entitled.
Married persons must decide whether to file a
joint return or two single returns. In most cases,
the joint return will save some tax. However, con
trary to general belief, this is not always true. Take
a couple who both work. He earned $5,000 last year
and she earned $3,500. Their medical bills cost
them $250. If they file a joint return, no part of this
expense will be deductible because of the 3 per
cent limitation. But if they file separate returns,
the husband will be able to deduct $100 of it on
his return. (If the bills were paid from the wife's
income and she takes the deduction on her return,
it will amount to $145.)
The best thing to do is figure your return both
ways and see which comes out better. The way you
filed in previous years does not bind you for this
year, and the way4 you file this year will not bind
you in future years.
'
More unnecessary taxes probably have been paid
by midnight-oil burners who work until the wee
hours of April 15 than by any other group. It's
just too easy to overlook things in the last-minute
rush. Take your time by filling out your return
well in advance of the deadline, then put it aside
for a while. A fresh look at it often will show you
where you missed something. Besides, think how
youll feel on April 14 when you can tell friends
that you've already finished your tax return.
Family Weekly. March 27, i960