New tax laws, pointers

Cannon Tax Center

The 27th Fighter Wing Legal Office will be providing free tax help, beginning Jan. 26. To help better prepare Airmen for filing their taxes this year, the Cannon Tax Office has scoured the law for changes since filing last year. Airmen might be interested to know …
Expanded IRA Options for Military Members
Members of the military serving in Iraq, Afghanistan and other combat zone localities can now put money into an individual retirement account, even if they received tax-free combat pay. Under the Heroes Earned Retirement Opportunities (HERO) Act, signed into law on Memorial Day, taxpayers can now count tax-free combat pay when determining whether they qualify to contribute to either a Roth or traditional IRA. Additionally, the HERO Act allows military personnel who received tax-free combat pay in either 2004 or 2005 to go back and make IRA contributions for those years. Eligible members will have until May 28, 2009, to make these special back-year contributions.
Taxpayers choosing to put money into a Roth IRA don’t need to report these contributions on their individual tax return. Roth contributions are not deductible, but distributions, usually after retirement, are normally tax-free. Income limits and other special rules apply. On the other hand, contributions to a traditional IRA are often, though not always, deductible, and distributions are generally taxable. Deductible or not, contributions to a traditional IRA must be reported on the return for the year made.
Telephone Tax Refunds
Anyone who paid long-distance telephone taxes this past year qualified for a standard refund on their 2006 federal income tax return without having to dig through old phone bills. The standard amounts are $30 for a person filing a return with one exemption, $40 for two exemptions, $50 for three exemptions and $60 for four or more exemptions. For example, a married couple filing a joint tax return with two dependent children (for a total of four exemptions) will be eligible for the maximum standard amount of $60. Using the standard amount is the easiest way for eligible taxpayers to get their money back by saving them from having to locate several months of old phone bills and analyzing these bills to determine the taxes paid.
New changes mean the IRS will be unable to process these deductions electronically (the only way the Cannon Tax Center processes tax returns) until Feb.3. This date also applies to individuals claiming tuition and fee deductions for those who attended higher education classes in 2006. Anyone who anticipates claiming either of these deductions should not schedule an appointment for a date before to Feb. 3 at the Cannon Tax Center.
For anyone filing a paper tax return on their own or through another service, there are a few further important notes:
— State Tax Deduction: Must be claimed on Schedule A, line 5. Enter “ST” on the dotted line to the left of line 5 to indicate that you are claiming the general sales tax deduction instead of the deduction for state and local income tax.
— Educator Expenses: This must be claimed on line 23, Form 1040, NOT 1040A. Enter “E” on the 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 a taxpayer selects “B” however, they must attach a breakdown now showing the amounts claimed for each deduction.
— Tuition and Fees: This is claimed on Form 1040, line 35, NOT 1040A. Enter “E” on the line to the left of that line entry if claiming educator expenses, or “B” if claiming both the domestic production activities and tuition and Fees deductions on Form 1040. Again, if the taxpayer enters “B,” they must attach a breakdown showing the amounts claimed for each deduction.
Splitting Federal Income Tax Refunds
Taxpayers can now split their refunds among two or three checking or savings accounts with U.S. financial institutions, regardless of which form in the 1040 family they file. Split refunds may help some taxpayers reduce their reliance on refund anticipation loans and keep more of their refunds. If you plan on splitting your income tax refunds and are having your taxes done at the Cannon Tax Center, be sure to bring your account and routing numbers for all accounts in which you plan to deposit your refund.
If you have any further questions regarding the topics above or regarding a change in the law you heard about, contact the Cannon Tax Center at 784-7304.
For more information, visit the Cannon Tax Center’s Web site online at www.cannon.af.mil/library/factsheets/factsheet.asp?id=4960 or at the Cannon secure Intranet Web site at https://www2.cannon.af.mil/FW/SA/JA/tax.htm.