Many tax breaks often overlooked, experts say

By Deborah Adamson
Advertiser Staff Writer

•	State tax aid For help in preparing your state tax return, call 587-4242 in Honolulu or (800) 222-3229 from the Neighbor Islands. You may also e-mail tax officials at taxpayer.services@hawaii.gov.

"I tell them it's 81 degrees and I'm going to the beach," Vesely said. "They hate it. They absolutely hate it."

But the state held another attraction — it doesn't tax Social Security benefits or government pensions.

"We checked. It factored in (to the decision to move to Hawai'i)," said the 58-year-old retiree whose husband, 66, collects Social Security.

A little extra time spent checking on tax breaks could make a big difference in how much in taxes you end up paying the state and federal governments. You might be eligible for more breaks than you think. Anything from Hummers to child safety seats could be a deduction or credit.

"Nobody wants to pay more taxes than they have to," said Cathy Tokishi, a tax information specialist at the state Department of Taxation. "They should not miss out on something that they're eligible for."

Here are some often overlooked tax breaks from the state and Uncle Sam:

• Itemize deductions on your state tax return even if you don't on your federal return.

  The standard deduction for federal returns is a high $9,500 for married filing jointly and $4,750 for singles. So if you don't have a lot of items to deduct, it might make better sense to choose the standard deduction.

  However, the state's standard deduction is much lower at $1,900 for married filing jointly or $1,500 for singles. In this case, it could be better to itemize, said Aaron Masuoka, a tax accountant at Deloitte & Touche in Honolulu.

• Interest on your U.S. Treasury bills, notes and bonds as well as U.S. savings bonds are not taxable by Hawai'i, Masuoka said. So don't report it on your state return. However, you have to pay federal taxes on them. Ginnie Mae and Fannie Mae mortgage-backed securities are taxable by the state.
  
  
• A Hawai'i resident can get a tax credit for taxes paid to another state. For example, say a Manoa resident attends college in California and gets a job. She files taxes on her total income in Hawai'i and California. She could be eligible for a credit for taxes paid to California.
  
  
• In Hawai'i, you can take a $25 credit per tax return if you bought a child car seat or booster seat, Tokishi said. But you need a receipt.
  
  
• The state has a low-income refundable tax credit of up to $35 per person. You and your dependents can claim the credit, with some restrictions. You're eligible if your Hawai'i adjusted gross income was $20,000 or less — possible for many retirees because their Social Security benefits, government and fully-funded pensions aren't taxed in the state. You can't be a dependent of another taxpayer.
  
  
• There's a state low-income household renters credit of $50 per exemption for those whose adjusted gross income was less than $30,000. But you must have been a Hawai'i resident for more than nine months last year and have paid at least $1,000 to rent your principal residence that is not government housing for the low-income or others exempt from property taxes.
• If you bought a hybrid gas-electric car, you can deduct up to $2,000 on your federal tax return, Tokishi said. There's no special line on your tax form for it. Add it to your other deductions. Hawai'i does not offer this tax break.
  
  
• Even if you don't itemize, there are certain deductions you can take, Tokishi said.

  A schoolteacher can deduct up to $250 in classroom costs on both federal and state tax returns. You can deduct up to $2,500 of interest from student loans on your federal return. The state allows a similar deduction, but taxpayers have to figure it out using a worksheet in the tax form.

• If you're self-employed, you can deduct 100 percent of your health insurance premiums in 2003, up from 75 percent previously.
  
  
• The self-employed and businesses also are allowed to deduct up to $100,000 in 2003 as a one-time write-off for purchase of business equipment, which could include SUVs or Hummers, said Mary Beth Frankin, senior associate editor of Kiplinger's Personal Finance Magazine in Washington, D.C. Previously, the maximum deduction was $25,000.

  The caveat: You have to use the vehicle exclusively for business. If not, you can deduct only the portion used for business. One way to calculate the proportion is to track the mileage used for business.

  In Hawai'i, you could deduct only up to $25,000, Tokishi said.

• Hawai'i businesses can take a capital goods excise tax credit of 4 percent. If a company bought business equipment such as cash registers, computers and machinery, it could take a 4 percent excise tax credit for these purchases.

  If they bought the equipment out of state, businesses can get a credit for the 4 percent use tax they had to pay for the purchase, Tokishi said.

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.