The I.R.S. Corrects My Tax Return, and Owes Me Taxes

Well, this is a little embarrassing. I got another letter from the IRS and they’ve made some changes to the tax forms I filed this year.

If you remember, they did this also, but the only change they made was to inexplicably eliminate my personal exemption — as though they thought I was being claimed as a dependent on someone else’s return or something — and so the upshot of it was that I just had to file an amended return re­in­stating the exemption. Not that it mattered much anyway, as the bottom line was the same in either case.

This time they’ve made three different changes to my return.

The first change I can’t figure out. The way they put it is this:

  • We changed the amount of capital gain or loss on Line 13 of your Form 1040 because there was an error on Schedule D, Capital Gains and Losses. The error was in the:
    • Computation of the capital gain or loss from Part Ⅲ of your Schedule D and/or
    • Transfer of that amount to Line 13 of your Form 1040.
    Capital losses are limited to $3,000 ($1,500 for Married Filing Separately).

I thought I had $4,276 in capital gains last year; the IRS apparently thinks I had $4,050. I don’t know where they got their numbers, but since this cannot do anything but lower my taxable income, I’m not going to raise a fuss.

The second screw-up is most embarrassing. I’ve been so ac­cus­tomed to telling folks that it’s easy to get under the federal income tax line, but that there really is no practical way to make a living under the payroll / self-em­ploy­ment tax line, that I forgot that in fact there is such a line and, given my particularly bad business year last year, I slipped under it.

  • We reduced or removed the total self-em­ploy­ment tax on Line 57 of your Form 1040. Your net earnings were less than $400; therefore, they are not subject to self-em­ploy­ment tax.

Finally, they changed the recovery rebate payment credit I applied. After doing the recovery rebate credit worksheet in the tax booklet, I was under the impression that it is a non-re­fund­able credit that couldn’t be higher than whatever income tax I owed. This would have made it a $176 credit for me (given my corrected, lower taxable income), which would reduce my income tax to zero. The IRS apparently thinks differently. They think I should have been able to get a $300 refundable credit, which means that (minus the $176) I was due a refund of $124 for last year.

They credited me accordingly, but seized the refund im­me­di­ately to apply to the taxes I didn’t pay for 2007.

I gotta say… I pay a lot of attention to my taxes, I volunteer to do tax preparation and have taken classes for this, and I’m not a particularly dumb bunny — but still, this stuff is just ridiculously hard to get right.

So the latest word on my taxes for last year is that if you com­bine all of my self-em­ploy­ment tax and federal income tax for the whole year… the government owed me $124 for the priv­i­lege of having me as its citizen.