ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Saturday, January 6, 1996 TAG: 9601070001
SECTION: BUSINESS PAGE: A4 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
Roanoke-area accountants are growing concerned about the inability of Congress to adopt a budget and tax package, saying it means taxpayers could face delays in filling out their 1995 tax returns.
The situation doesn't hurt too much right now because few taxpayers have their W-2 forms documenting wages or 1099 forms showing income from interest and dividends.
"It will start getting crucial if we don't get some guidance by mid-February," said Mary Ann McElmurray, a certified public accountant with the Roanoke firm of Brown, Edwards & Co.
The main problem is the ongoing debate over the capital gains tax.
Current law sets a top limit of 28 percent for capital gains, although individuals in lower tax brackets pay at their regular tax rates, said Harry Schwarz, a certified public accountant with the Roanoke firm of H. Schwarz & Co.
He said the Republican budget and tax package would cut the rate by making only half of a capital gain subject to tax at the regular bracket. Thus, Schwarz explained, someone in the 15 percent tax bracket would, in effect, pay 7.5 percent while those in the top 39.5 percent bracket would pay 19.75 percent.
On the other hand, he said, capital loss write-offs would be reduced. Thus only $3,000 of a long-term loss of $6,000 could be counted to offset taxes on ordinary income.
The Senate bill, Schwarz said, would make the changes effective to Jan. 1, 1995, while legislation pending in the House sets an effective date of Oct. 13, 1995. But some legislators want the changes to be effective as of Jan. 1, 1996.
The Clinton administration opposes any change in the tax law, citing the lost income to the government, Schwarz said.
Bills in Congress also would affect the dependents' credit and the earned income credit, but Schwarz said these changes would not be retroactive to 1995.
"Who knows what's going to happen?" about the tax legislation, McElmurray said. She said Senate Republicans are sticking strongly to the Jan. 1, 1995, date because they promised a capital gains tax cut for last year.
McElmurray said the pending legislation also would change some other tax laws for last year. These are so-called "sunset" provisions that were enacted for a certain period of time with automatic expiration dates. One that would be re-enacted for last year grants a deduction for educational assistance by employers.
Schwarz and McElmurray said taxpayers and tax preparers must follow the law as it exists when a return is completed. Thus, anyone filling out a return while a change in tax law is pending cannot take advantage of the proposal, such as a cut in the capital gains tax.
If a retroactive version of the law is passed after returns have been filed, taxpayers must decide whether to file an amended return.
Congress has done this in the past. Just last year, the accountants recalled, Congress passed a retroactive law extending a deduction for health insurance for self-employed people. Those taxpayers had to file amended 1994 returns to claim the deduction.
LENGTH: Medium: 62 linesby CNB