One on One is a weekly feature offering excerpts of interviews conducted by The Evening Sun with newsworthy business leaders. Herma J. Hightower is district director for the Baltimore district office of the Internal Revenue Service.
Q. There have been many changes in the tax form in recent years. What are the major changes in the 1990 income tax form?
A. The basic changes affect the Form 1040A. Additional lines have been added to the 1040A to allow for the reporting of retirement income, estimated tax payments and tax credits for the elderly. That will result in a significant number of elderly taxpayers being able to move from the longer 1040 to the more concise and easier-to-fill-out 1040A.
Q. Are there any other changes in the tax laws that people should be aware of this year?
A. Yes. The personal exemption is up to $2,050 which is a $50 increase. Also the standard deduction is up for most taxpayers, and a key point is while the tax rates remain the same, they have been adjusted for inflation so that even though you may be making more income, it does not necessarily kick you into a higher bracket.
Q. As you know, around this time of year there come a lot of stories about how complicated the forms have become and how difficult it is to file your income taxes. Is it necessary for everybody to hire a professional tax preparer?
A. No. Not at all. More than half, or nearly half, do their own returns. And this last year, 80 percent were able to use the standard deduction so that really those who are using paid preparers are individuals with pretty complicated financial situations, and they generally will go to a tax preparer because they don't have a straightforward financial profile. We obviously are concerned with the complexity and we work diligently to find ways to simplify. For example, I just mentioned what we've done with the 1040A. That simple act will result in thousands being able to move to a simpler form.
Q. Even though you say about half of the people do their own taxes, I still hear about people who go to the various chains of tax preparers and have the simple forms prepared for them. Should these people maybe save their money and try to do it themselves?
A. You know, it's difficult to answer it because sometimes they do it because they don't want to be bothered with it. I think they would be pleasantly surprised if they took the time to read the instructions. It may not be as difficult as they read about because I think what they're reading about are the tax situations of people who have more complicated financial profiles.
Q. Do you think a certain amount of math phobia is also in it?
A. Well, that could be. That could be, but I think another thing, obviously, is the timing of it. If you wait until the last minute, you do wind up rushing and perhaps not clearly understanding and thereby missing some things to which you are entitled.
Q. What are some common errors that people make on their tax forms?
A. Basically, the errors come in the area of omitting entries. Very basic information. Sometimes taxpayers are so eager to get to the bottom line -- what is my refund or how much do I owe -- that they omit the top half of the return, which really provides the
basis on which the tax is computed. Just a simple transposition of numbers also can create a problem. But basically, it's rushing through and not taking the time to read carefully and fill in the information, and then going back, maybe putting some space there. Complete it, put it down, come back and review it. And obviously we're talking about time again. So my message, generally, is start earlier so that you can take your time and chances are you are going to come out . . . ahead.
Q. How many forms are sent back because they didn't sign them?
A. I don't have a number on that, but it is not uncommon. As a matter of fact, I remember getting a phone call at 11:15 last April 15 or 14th; the guy said, 'I've got it filled out. Now what do I do with it?'
Q. What suggestions would you have for taxpayers to prepare for next year's tax return?
A. Very basic. Start now. Keep your materials. Try to isolate one place; keep them there so that you can find them when you need to. We sometimes try to rely on our memory, and it just doesn't work. So basically, keep your materials together. Start early looking at the tax implications of financial transactions. Don't wait until the last minute. That's basically the theme throughout. Start early, keep your materials and records together, and consider the tax implications of financial transactions.
Q. What sort of high-tech alternatives do taxpayers have now as far as filing their income taxes? I believe you can file them electronically?
A. You just hit the button there. Absolutely. Electronic filing is something that we are going into for the third year here in the Baltimore area and we are very excited about it. We have about 500 preparers through the state of Maryland and the District of Columbia who offer that service, and rather than the eight to 10 weeks turnaround on a refund if you file manually, you can expect three to four weeks if you file electronically. The only caveat is that electronic filing at this point is for refund returns only.
Q. When will it be available for the personal computers in people's individual homes?
A. I think that's a bit off. We've got more research to do before we will be able to expand it to that extent.
Q. What are the hours that you are open during this time before April 15 and what sort of assistance can they [taxpayers] get from the IRS?
A. We have 12 staffed offices around the state and the District of Columbia to assist taxpayers who want to come into the office. Our office hours are 8 a.m. until 4:15 p.m. We've got telephone assistance in the Baltimore area; taxpayers may call us at 962-2590, toll-free elsewhere, 1 (800) 829-1040. In addition, we are very pleased because we expand our capabilities through the use of volunteers, and therefore we offer at various sites around the state and the District, through the use of volunteers, income tax services for the elderly and low income. Last year, more than 37,000 taxpayers were assisted through this volunteer effort.
Q. What sort of special considerations is the IRS giving this year to people who are serving over in Saudi Arabia?
A. I am sure that your readers have noted in the paper the last few days that the Persian Gulf has been designated as a combat zone. Basically what we are saying is that pay earned during that period that they are actually there is exempt from taxes, plus they have a six-month extension to file returns not only the personnel but their spouses as well.
Q. Could that be extended even further if the conflict lasts longer than six months?
A. Yes. Oh, yes. As long as they are there. It is six months after they leave. When they come back home, they have a six-month period of time beyond that regardless of the amount of time that they're there.