EXPENSE ACCOUNT LIVING

As fear stalks the land over what kind of tax increases the new junta in Washington may be devising one ray of sunshine has broken in and given hope to the oppressed. A struggle that has been going on for years between IRS and a large class of taxpayers has ended -- with a win for the taxpayers.

Incredible? Let me explain what has happened and you won't think so. By the way, IRS hasn't mentioned it in any of their instructions for 2008 returns, being shy about bringing it up, but that's okay since it can't be missed when making a return. The big switch is in Schedule C of Form 1040, Business Income or Loss. See for yourself.

This schedule for years and years has included 29 different lines for entering one's business expenses to be used as deductions against income. The sked was designed for its chief users, small businesses, including many one-person enterprises functioning as independent contractors doing sales work or some other service, but claiming not to be employees of those engaging said services. This was convenient for them and for their employers because they, the workers, could claim business expenses rather than have them claimed by the employers. The employers in turn didn't want the job of withholding income tax and Social Security contributions from paychecks. They also saved themselves the nuisance of paying the workers' job expenses and then deducting the payments from their own tax returns.

This meant the workers took on the burden of paying all their Social Security contributions in the form of a self-employment tax rather than sharing the cost with their employers. Even so, they continued to prefer this SE status over employee status for reasons best known to themselves. The IRS suspected the reason was their desire to pad their expense claims and defraud the government. That was why Schedule C was loaded up with the 29 booby traps mentioned above. Someone thought maybe the workers would see the light and accept normal employee status rather than fight their way through this obstacle course.

It was not to be. Both sides stuck to their guns. IRS insisted the independent contractors were actually statutory employees in disguise who didn't meet any other standards. The Treasury though couldn't convince Congress, which refused to change the rules. Nothing changed for years until two weeks ago. I finally opened up my IRS tax package and turned to Schedule C. It had undergone a complete transformation. The twenty-nine questions about expenses had been reduced to one -- your total expense, period. The battle was over and the taxpayers had won.

What other good news is there from IRS in the spring? Well, the standard deduction has been increased. That won't mean much in New York where it's not only buildings that scrape the sky. Taxes do it too. Just about any New Yorker can ignore the standard deduction and instead combine his city and state income taxes and take a regular deduction that will be higher and will also open up Schedule A for him to take others, such as charitable donations.

What else? Thanks to gas prices the mileage cost you can take for use of your car is now 50.5 cents for the first half of 2008 and 58.5 cents for the second half. I remember when it was 28 cents and IRS had been slow to concede that. We're in the jet age now, though, and everything moves at supersonic speed. Especially prices.

The Earned Income Credit is going up again, or rather the income limit for getting it is going to $43,415 tops. I remember when it started and I was a preparer looking for it for my clients. You couldn't make much at all if you wanted the credit. You had to be poor to get it. I still remember the young man who was taking care of his baby sister because his momma was in rehab. Was the baby his dependent under the law? No, nothing in it about sisters. That's odd, when they included foster children. Say, couldn't she be one? The book said nothing about legal requirements for fosters. I decided she qualified and the client got a $1,000 credit. Usually people poured out thanks when you did something like that, but he didn't understand and said nothing. I took it well and eventually made a full recovery.

Lastly, there will be a credit next year for those who place a plug-in electric drive motor vehicle in service. I might do that but I would do all my driving on a closed course about sixty yards long. If that didn't get me the credit then I'd do none and I'd let somebody else get plugged in.

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