Getting interactive with the IRS

The IRS has gone computer calculator crazy!

First, tax programmers came up with the withholding calculator to help you determine how many allowances to claim on your W-4.

This is probably a good one to play with this time of year. When you get your annual W-2, run some preliminary tax return numbers to see if you’ll owe a lot or get back a lot more. Owing the IRS or getting a refund means you’re having too little or too much, respectively, taken out of your paycheck, and a large amount either direction is not the wisest way to manage your money.

Adjust it now, early in 2007, so this year’s withholding will be pretty darn close to what your next actual bill will be.

Then Uncle Sam rolled out the alternative minimum tax assistant. More and more taxpayers each year discover that they are victims of this nasty parallel tax system. A check now can reveal whether you’re going to have to come up with some extra AMT cash in April. Never good news to get, but at least you’ll have a little extra time to find the money or make payment arrangements.

And even if you’re in the AMT clear this year, if you come close to owing the tax you’ll know that you need to keep an eye on it for 2007 tax- planning purposes. That means that at the end of the year you might not want to accelerate deductions, since under the AMT, you’ll have to add many of them back into your taxable income.

By knowing in advance that the deductions won’t do you any good because you could face AMT charges, you won’t waste them. Joe at Roth & Company discusses the differences in the AMT and AMT-less planning approaches. You’ll find eight ways to escape the AMT sting here.

And speaking of deductions, we now have the sales tax deduction calculator. With this online program, you punch in your ZIP code and a few entries from your draft Form 1040 and the calculator will figure the amount of state and local sales taxes you can claim.

The IRS is expected to actually start processing such claims right about now. Since the sales tax deduction, along with the tuition and fees and educators expenses write-offs, were added back to the tax code late last year, the IRS has been holding onto any January-filed returns that included these three items in order to get the applicable software processing system in place.

The agency announced earlier that it would start working on these 1040s on Feb. 3. But maybe this calculator is an indication they’ll begin working of them a few days early.

The IRS also says it has no interest in getting into the tax preparation business, despite pressure from consumer advocates who want the agency to directly handle e-filed returns instead of making taxpayers use private-sector tax software to do the job.

But with the emergence of all these nifty online calculations to help figure various tax items, it looks like the agency might actually be inching that direction.