The following article appeared in the April 12-13, 2008 (Weekend Edition) of the Wall Street Journal, Page A2.
It’s crunch time for millions of procrastinators.
With Tuesday’s federal-income-tax deadline drawing near, many Americans will spend much of this weekend calculator in hand, tax software loaded, searching for last-minute deductions or credits, sifting through investment documents and trying to decipher Internal Revenue Service instructions.
Thanks in-part to the lure of economic-stimulus payments, record numbers of returns are being filed this year. Through April 4, the IRS says it had received about 96.8 million returns, up 9.3% from a year earlier.
Uncle Sam is promising these special payments as part of an economic-stimulus package passed by Congress, and the payout requires a tax return to be filed. These payments typically will be as much as $600 for an individual or $1,200 for married couples filing jointly, plus $300 for each child under 17. Not everyone is eligible; the payments begin to phase out once income exceeds a certain level.
The payments will begin flowing to about 130 million households next month in an effort to juice consumer spending and mitigate the economic slowdown.
As usual, most filers so far this year are getting refunds, which also could bolster consumer spending, unless those dollars are simply eaten up by higher gas costs and mortgage debt. The IRS approved about 75.1 million refunds through April 4, up 2.1% from a year earlier. The dollar amount of refunds rose 5.1% to $183.04 billion. The average refund: $2,436, up about 3%.
Many taxpayers think of refunds as a convenient form of forced savings. But the Treasury doesn’t pay interest on refunds. Thus, those people effectively are giving interest-free loans to Uncle Sam.
The Treasury Department reported Thursday that individual income-tax revenues for the six months through March rose to $503.6 billion from $479.2 billion in the same six-month period a year earlier. For the full fiscal year, the government’s budget estimate calls for individual income-tax revenues of more than $1.2 trillion. (The government’s fiscal year ends Sept. 30.)
As for the dreaded audits, the IRS has audited only about 1% of all individual-income-tax returns in each of the past few years. Still, the number of individual-income-tax audits reached a 10-year high in 2007, and the IRS plans to increase the number of audits this year, with an eye on high-income taxpayers. This year, the IRS reported that audits of taxpayers making $100,000 or more rose 14% in 2007 from 2006, while audits for people making $200,000 or more rose 29%. They surged 84% for those with incomes of $1 million or more.
Amid the current mortgage crisis, there are a few new related tax-list twists to watch out for this year. Among them is a deduction for private-mortgage insurance premiums. There’s also a provision that will provide relief in certain cases where a lender forgave a debt on a taxpayer’s home.
Also, there are new record-keeping requirements for cash contributions: You can’t deduct any of your monetary donations, no matter how tiny, unless you have proof, such as a cancelled check or a receipt from the charity.
As for taxpayers who can’t finish their returns in the next few days, the IRS says the agency expects to receive a record 10.3 million extension requests, up from 10 million last year. Extensions automatically give the filer until Oct. 15, although it doesn’t give any additional time to pay whatever is owed.