Another Scandal: Tax returns more complex than ever
Calculating federal income taxes is rarely easy, but 1997 returns, arriving
now, will be more complex than ever for millions of investors.
Congress made a lot of changes to the tax laws last year. But the one
change that will hit most investors is on Schedule D of Form 1040 - the
place you report capital gains on stocks, bonds, mutual funds and other
property.
Schedule D has ballooned from 19 lines on the 1996 return (plus 13 lines
for higher-income filers) to 54 lines of potential calculations.
That's because under the new law, long-term capital gains are taxed at a
range of rates from 28% to 10%, depending on how long the assets were
held, when they were sold and an individual's tax bracket.
And for the first time, all taxpayers with capital gains, including owners
of taxable mutual funds, will have to complete Schedule D.
"This is new territory for more than 4 million taxpayers," says Jeff
Harvey, vice-president of tax reporting for discount broker Charles
Schwab. In the past, only active traders were required to complete the
form.
Buy-and-hold investors who sold no shares during the year could skip
Schedule D. They simply entered the capital gains distributions they
received on the appropriate line of the 1040 form.
Here's how the rates work:
Except for collectibles, for which the top capital gains rate remains
28%, the new law lowers the maximum rate of tax to 20% for
long-term capital gains on assets held more than a year and sold
after May 6 and before July 29.
After July 28, assets held more than 12 months, but less than 18
months, are still taxed at the 28% rate.
Assets sold after July 28 and held more than 18 months are taxed
at 20%.
Taxpayers in the 15% tax bracket pay 10% instead of 20% in the
examples above.
Brokerages and mutual fund companies have until Feb. 2 to let
shareholders know how much of the taxable distribution they received in
1997 is taxed at the 28% rate. That information will appear on Form
1099-Div.
Most of those firms say their phone representatives are prepared to
handle questions from confused shareholders.
But investors should wait until the 1099 forms arrive before they get out
their calculators.
"Any time there are changes like this, it's important for everyone to take
the time to be sure they have the right information," says John Gardner,
senior tax manager at consultants KPMG Peat Marwick in Washington,
D.C.
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