Oklahomans in 1987 have not only a shaky local economy to
contend with, but also a complicated, radically overhauled federal
income tax system, a landmark law offering lower rates, fewer
deductions and a big shift of tax liability from individuals to
Most of the changes that involve individuals took effect Jan. 1,
although part of the rate reduction will be delayed a year. Workers
who have filed new W-4 withholding forms with their employers could
see some effects of the new law in their first 1987 paycheck. Every
earner is required to file a new W-4 by Oct. 1.
Among the bigger changes: higher personal exemptions and
standard deductions; elimination of deductions for two-earner
couples, sales taxes and (gradually) consumer interest; reduced
writeoffs for medical expenses and such miscellaneous deductions as
union dues, and several pension changes including limitations on
Individual Retirement Account deductions.
The top 50 percent individual tax rate dropped to 38.5 percent
this year and to 33 percent in 1988. For 1987 earnings, the old
system of 14 brackets for joint returns and 15 for single people has
been cut to five; in 1988 and beyond there will be three brackets
and three-quarters of Americans will pay a flat rate of 15 percent
on the taxable share of their earnings.
The individual changes have no effect on 1986 tax returns, which
are due by April 15. Their impact comes on financial planning for
the 1987 tax season.
In that regard, financial advisers say people accustomed to
finding ways to shrink their taxable income should start changing
The new tax law marks a retreat from using the federal tax code
for social and economic engineering. So it offers few credits and
deductions aimed at enticing taxpayers to pay for goals deemed
appropriate for the public good.
Methods some taxpayers have used to create losses and thereby
shield income would be abolished. Congressional reformers targeted
the abusive type of tax shelter that the Internal Revenue Service
has been battling for years.
``Master recordings of films, or books, exotic nut plantations,
gold mines in New Jersey and orange groves in Alaska. Those things
are dead and gone and good riddance,'' said David A. Berenson,
adjunct professor of taxation at New York University.
But less exotic, more productive ways of writing off income also
would be wiped out or sharply curtailed.
``Everyone will have to rethink their whole investment
strategy,'' said John L. Norman Jr., national director of the
Pannell Kerr Forster accounting firm in Washington. ``A lot of
traditional tax shelters no longer make sense.''
The purchase of tax-free municipal bonds would be one of the few
shelters left largely unchanged. The ability to tuck dollars into
Individual Retirement Accounts to defer taxation would be curbed. …