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As Friday Tax Deadline Looms, Some Would Be Wise To Seek Extension

April 11, 1988

WASHINGTON (AP) _ Friday is the deadline for filing 1987 federal tax returns, but if confusion about the new tax law has caused you to put off the chore this long you might be better off delaying the inevitable for another four months.

Just filling out a one-page Form 4868 will give you a reprieve until Aug. 15 - but you must estimate what you owe, if anything, and enclose a check with Form 4868. But at least you won’t be rushed into making a mistake.

The Internal Revenue Service expects about 6.25 million couples and individuals to ask for the automatic delay, about 1 million more than last year. If you plan to join that number, says IRS spokesman Wilson Fadely, you should get a Form 4868 immediately.

″If you wait until the last day to look at the library or Post Office for the form, you may not find one,″ Fadely said.

The IRS is expecting 107 million individual tax returns this year and estimates that 37 million of them will come pouring in during the 21 days that end on April 22. More than 58 million had been received by April 1. Some of the remainder will be filed after the deadline; some will come from military personnel who are stationed abroad; some will come later from taxpayers who have deadlines other than April 15.

The IRS has processed 81 percent of the returns received so far, down slightly from last year. More than 77 percent are getting refunds, compared with 78 percent at this time last year. Refunds are averaging $825, up from $806.

Tax authorities speculate that uncertainty about the new tax law caused many people to put off filing this year. The new law is blamed by the IRS for an increase of about 2.5 percent in the number of taxpayer errors on this year’s returns. And the biggest rewriting of the law in the history of the income tax means some people - clearly a minority - are paying more tax.

″For a lot of people it’s a bit of a surprise,″ says Vern Martens, senior tax attorney at Merrill Lynch headquarters in New York. ″They were impressed by the fact rates were cut but forgot that certain deductions are no longer available.

″The groups that benefit most are lower-income people and those at the other extreme who were in the 50 percent bracket and suddenly they’re down to 38.5 percent,″ Martens said. ″The vast majority in the middle are paying from a little bit more to a lot more.″

On the plus side, the maximum tax rates applying to most taxpayers were lower in 1987 than in 1986. On the other hand, some key deductions that had spelled lower taxes for millions were no longer available or significantly reduced for 1987.

The deduction for sales taxes was wiped out entirely. Only 65 percent of consumer interest was deductible. Only unreimbursed medical expenses that exceeded 7.5 percent of adjusted gross income were deductible. And only the portion of miscellaneous deductions, including union dues, exceeding 2 percent of AGI were deductible.

But the loss of two other deductions meant higher taxes for many middle-and upper-income families. Two-earner couples lost a special deduction of up to $3,000, and couples over $50,000 in which at least one spouse was covered by a company pension lost the writeoff of up to $4,000 for Individual Retirement Account contributions.

Introduction of four new tax forms has caused widespread confusion, although most of the problems are being encountered by higher-income people who can afford the professional help that many taxpayers are needing. Those forms:

-8598, which fewer than 1 million people will have to file to calculate how much of their home mortgage interest is deductible. It generally applies only to those whose outstanding mortgage and home equity loans total more than the purchase price of the home and any improvements.

-8606, required mainly of middle- and upper-income taxpayers who make non- deductible contributions to an IRA.

-8615, used to compute the tax owed by children under age 14 whose interest and other investment income exceeded $1,000.

-8582, for calculating losses on rental operations and other ″passive- activity″ investments.

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