YOUR TAXES: A SPECIAL REPORT : PAGES OF TAX TIPS : From Thick to Thin, How-To Guides Can Help Taxpayers Wade Through Complicated Forms

Preparing an income tax return for 1987 by yourself will be a challenge.

Much of the old familiar jargon is still there: “unearned income,” “capital gains,” “alternative minimum tax.” But the rules of the game have been changed.

Now, who knows whether an expense should be a miscellaneous deduction subject to the 2% of adjusted gross income limit (Line 21, Schedule A) or if it should be a miscellaneous deduction like in the good old days, when a deduction was really a deduction (Line 25, Schedule A)?

Getting answers quickly and inexpensively isn’t easy, either. Go to an Internal Revenue Service office for their special publications and the likely answer is: “We’re out of that publication” or “That publication isn’t in. Call our 800 number.”

Where can you find help? At your local book store.

Enough Americans prepare their own tax returns that publishers have stepped into the tax-return void with large, bulky tomes that can be mind-numbing in their attempt to describe every possible tax question and answer. This year, especially, publishers report a staggering demand for tax return information.

After assembling a library of six how-to (and how-not-to) tax books, it is clear that the more money you pay for the book, the more pages you get. But, as in other cases, don’t confuse quantity with quality.

Consider “The Arthur Young Tax Guide 1988” by the Big Eight accounting firm (Ballantine Books, $10.95). It is the most expensive and the thickest (1 1/2 inches).

In the 1-inch-thick category are “Guide to Income Tax Preparation” (Consumers Union, $9.95) and “Sprouse’s Income Tax Handbook 1988” by Mary L. Sprouse (Penguin Books, $9.95).

Measuring 3/4 of an inch is “J. K. Lasser’s Your Income Tax” (J. K. Lasser Tax Institute, $8.95). And measuring in at 5/8 of an inch is “Pay Less Tax Legally” by Barry R. Steiner (New American Library, $5.95).

The sixth book is 5/16 of an inch thick. “Your Federal Income Tax,” also known as Publication 17 of the Internal Revenue Service, is free.

What do the how-to books provide that is not available for free in Publication 17?

To measure, let’s take a look at this situation, new in 1987. You have a child who is under 14 years of age. Over the last few years, stock has been purchased for the child, thus transferring tax liability on the dividends from the parents to the child. Last year, there was $1,500 in dividends.

Congress caught up with this trick last year, and the 1986 tax law contains provisions for imposing a “kiddie tax” on parents. In simple terms, a child under 14 pays no taxes on the first $500 of investment income. On the next $500, the child pays taxes at the child’s rate, 11%. For all investment income over $1,000, the child pays taxes based on the parents’ top rate, which could be as high as 38.5% this year.

Publication 17 devotes all of Chapter 33 to explaining “Tax on Investment Income of Certain Minor Children.” The chapter includes line-by-line instructions for completing Form 8615, which must be completed for children under 14 who have more than $1,000 in investment income.

Let’s consider the competition. “Pay Less Tax Legally” has the skimpiest coverage, about one page of text. There are no suggestions, hints or caveats. A completed Form 8615 is included, but there is no example that refers to the form. Publication 17 wins this round.

“The Arthur Young Tax Guide 1988” is so thick in part because it includes all of Publication 17. Why, then, should you pay $10.95 for a repackaged Publication 17? Arthur Young says its comments, explanations and money-saving tips are worth it. The “kiddie tax” section leaves something to be desired, although other parts of the book are very handy.

The book suggests you should remember that the child sooner or later will be 14, and then all the child’s income will be taxed at the child’s rate. The “time is on your side” argument is obvious.

The book reminds you that the tax on the first $1,000 isn’t very high. Last, it makes a good suggestion of considering Series EE bonds or tax-exempt municipal bond funds. On the “kiddie tax” issue on the whole, however, Arthur Young is not very helpful, considering what the other books have to offer.

“J. K. Lasser’s Your Income Tax” also reprints a completed Form 8615--not for one but for two children. The text clearly explains the completed forms and, in addition, there is a cogent discussion of how to determine whether Form 8615 is required. Publication 17 has more text, but Lasser’s two examples are very helpful in actually completing the form. Moreover, a chapter in the back of the book on family income planning contains hints and ideas.

“Sprouse’s Income Tax Handbook 1988” is easily the chattiest of the books. For example: “If you throw just one birthday party for your child, do so when he turns 14. This is the year the tax fairy pays a visit--when the savings you stashed under your child’s Social Security number are finally taxed at his lower rate.”

With this book we start to get into the potential problems of the “kiddie tax.” Can a child be subject to an alternative minimum tax? Sprouse’s book has an answer: Yes.

There is a suggestion that bears considering. Set up an individual retirement account for a child. To be eligible, the boy or girl must work. The contribution can be all or a part of the child’s wages, up to $2,000 a year. Taxes are deferred on the interest from the account until a half a century or so from now, when the child retires. But think of the compounding on the account.

The “Guide to Income Tax Preparation” from Consumers Union is thorough. It is the only book, by the way, that notes a serious potential problem: In order to complete Form 8615, parents must reveal their taxable income to their child or children.

The book notes that “in less congenial situations, parents may be unwilling or reluctant to disclose their tax information to their children, or one parent may be unwilling to share it with an estranged spouse who requests the information on the children’s behalf.”

The book states that a child may apply to the IRS for the information, adding that it would be a time-consuming process.

The Consumers Union book includes suggestions for continuing to use children under 14 to reduce your tax liability. Buy Series EE bonds, for example, or municipal bonds or growth stocks, the book says.

Are the books helpful? Yes. Each in its own way offers something useful, and for an investment of less than $50 for all five, a do-it-yourselfer potentially can save more than $50 in taxes.