Shock of the day: I itemize

When I get swamped, "tomorrow" tends to get interpreted loosely. Anyway, back into the tax trenches!

Although I finished doing my taxes, I haven't filed them yet: I'm one of the people affected by late tax-law changes that the IRS needed extra time to handle. People claiming the deduction for college tuition expenses were affected by the changes, which the IRS estimated would apply to about 1 million of the 136 million tax returns the IRS expects to process this season. Although, clicking over to that press release, I see a note that "As of 2/3/07, the IRS is Processing Extender Claims" ... so it looks like I can go file as soon as I finish blogging.

Others might also get tripped up trying to file early, though. Various news outlets are reporting rising corrections rates in the 1099s sent to investors with dividends and other investment income. Thanks to tax-law tangles, the error rate on those forms has climbed as high as 14 percent -- meaning that people who file early could face the frustration of finding corrected forms in their mailboxes a few months after they've finished their returns. (You can amend, though it's optional if the error was in the IRS's favor. Even if it's not, unless the error is huge, I imagine few people bother to make the correction. The odds of getting audited remain small and dwindling.)

The last few years I've been stumbling over discoveries of things I can still deduct even though I don't itemize. Last year, it was my tuition deduction: Even though I don't qualify for any of the educational credits (which give you $1 off your taxes for each credit dollar you qualify for), I did max out the $4,000 allowable deduction. Using that cut about $1,000 off my tax bill (or, in my case, added $1,000 to my refund). Sweet.

This year, I discovered that I do itemize. I always assumed we wouldn't have any reason to until we had a mortgage. But there are a handful of other scenarios that can make itemizing the cost-effective thing, and it turns out that the amount we pay in state and local taxes exceeds the standard deduction. (Ah, NYC. Did I mention how depressing it was to go through the TurboTax Local portion and have it wrack up a whopping refund -- until I ticked the 'I live in NYC box'? It actually had a little animation of my refund dollars spinning away as it wheeled its refund-calculation line backwards. When I winged at David about this, he responded, "Your taxes buy subways. It's worth it.")

The practical upshot of this is that for the first time, I'm deducting charitable donations. The downside is that because I always went along assuming "I don't itemize and get no deduction," I never kept the paperwork on our donations. Oops. Guess this is the year I start!