If you’ve procrastinated filing your 2003 tax return until now, you’re almost out of time. The automatic extension you filed for on April 15 is up next Monday, on August 16. You get an extra day because the 15th falls on Sunday. But be careful, because tricky new tax laws have created a few bumps in the road for taxpayers, and could cost you extra bucks in penalties and late fees.
This past filing year, the big tax blooper has been the child care tax credit. More than 3.5 million people have already made a mistake in calculating the correct amount. Why? Although the maximum credit for each child under the age of 17 is $1,000, you must subtract the advance payment that the federal government sent you during 2003. Remember the check you got for $400 last summer?
If you were able to take the $1,000 total credit allowed, you needed to subtract $400 of the advance payment — or whatever your advance payment was, which would leave you $600 of remaining tax credit to write off on your taxes.
Another tax blooper that’s causing some problems for taxpayers is figuring out how to calculate capital gains and dividend taxes under the new formula.
Congress cut the top rate on long-term capital gains to 15 percent on stocks, bonds and other securities. For tax purposes, holding an investment for the long-term means you’ve held it at least one year or more. Short-term means you’ve held it for less than a year. The short-term tax rate has stayed at whatever your marginal tax rate is — that is, the highest rate you personally pay.
At the start of 2003, congress cut the top tax rate for dividends from 35 percent to 15 percent. Unfortunately, only corporate dividends — like the big dividend Microsoft is set to pay its shareholders – gets the benefit of the new tax rate cut.
Lots of other dividends don’t get this special tax treatment, like money market dividends. Your financial institution should have sent you a 1099 form telling you how much of your dividends qualify for this tax treatment. Just make sure you’re looking at the right 1099 form. It isn’t just taxpayers like us who make mistakes. Many financial institutions realized they sent out incorrect 1099 forms and sent new ones later on.
For information on other tax changes, go to the IRS website at www.irs.gov and download publication 553. You can also get other information you need to file your taxes at the IRS website.
If you still need more time, you can try to get another extension until October 15th, but this time, it isn’t automatic and you have to detail the missing documentation you need to complete your return.
RESOURCES www.irs.gov Tax changes: irs publication 553 Need an extension? Form 2688
Copyright 2004, WGN-TV
August 10, 2004