Congressional Action of ’93 Could Help--or Harm--Taxpayers : Government: A guide to some of the changes affecting seniors, business people, philanthropists and real estate professionals.

Americans filing 1994 returns face significantly changed tax rules this year because of congressional actions taken in 1993.

More middle-income seniors will pay more tax on Social Security benefits. Low-income individuals and families will qualify for bigger tax breaks. Business people will find it harder to write off the cost of meals and moving to chase a job. Meanwhile, philanthropists must take greater care to substantiate deductions, while real estate professionals will get special tax breaks if they invest where they work.

Who will be harmed and who will be helped? A guide:

Indexing: One group of winners is everyone who did not get a raise last year. Inflation adjustments will lower their taxes.

The value of personal exemptions has jumped to $2,450 per person, from $2,350; standard deductions have risen to $6,350 for married couples filing jointly, to $3,800 for singles and to $5,600 for heads of household. Tax rates have also been indexed for inflation, meaning it takes a few extra dollars to jump into the higher brackets this year.

What does that mean in dollars and cents? An individual who earns $50,000 and claims the standard deduction would pay $140 less in 1994 taxes than he paid in 1993.

Earned income credit: The biggest beneficiaries of 1994 tax changes are low-income individuals and families, who will find themselves on the receiving end of one of the most generous tax breaks in history. A working parent with two children may be able to claim a tax benefit of as much as $2,528. That’s up from $2,364 in the previous tax year.

Additionally, where the earned income tax credit was previously available only to parents, it has been extended to low-income individuals without children in the 1994 tax year. An individual worker who earned less than $9,000 annually can claim a credit of up to $306.

Notably, whereas most credits can only reduce the tax you pay, this one is refundable. Even if you owed and paid no tax in 1994, you can still qualify for a refund with this credit.

Passive losses: Real estate professionals who invest in real estate can also benefit from the new rules. That’s because they’re exempted from so-called passive-loss rules. What these rules have done in the past is prohibit some individuals who have money-losing rental properties from completely deducting the losses.

But a change passed in 1993 says those who work as real estate developers, landlords, brokers, dealers or agents for more than 750 hours per year--and who call real estate their primary profession--can claim all of their real estate related losses, in effect subtracting them from their ordinary income.

There are some restrictions on who can qualify, says Nancy Anderson, manager of special projects at H&R; Block in Kansas City, Mo. Those who have passive real estate losses may want to consult a tax professional to determine whether they can benefit from the exclusion.

There are plenty of 1994 tax losers as well:

Social Security: Middle- to upper-income retirees who collect Social Security benefits are the hardest-hit. This year they’ll pay tax on up to 85% of their Social Security income if they have enough other kinds of income. In previous years, Social Security benefits were no more than 50% taxable.

Exactly how much more these retirees will pay depends on their marital status, outside income and the amount of Social Security they receive. In general, the people who will be hit hardest are married couples who have substantial pensions or investment earnings and also receive near the maximum in Social Security.

Business expenses: Individuals with non-reimbursed business entertainment expenses will find that a smaller amount of these costs are deductible.

Starting in 1994, if you take a business associate to dinner or a show, only 50% of the cost is deductible, compared to 80% in previous years. Further, you can no longer take a companion on a business trip and expect to write off the cost of his or her travel unless the person is a bona fide employee of yours.

Charity: Those who give substantial amounts to charity will also face stricter requirements on record keeping. In the past, charitable contributions could be substantiated with nothing more than a canceled check. But starting in 1994, charitable contributions of more than $250 per recipient must be acknowledged with a receipt or letter from the charity.

Importantly, this acknowledgment does not need to be filed with your 1994 return, but it must be received and dated before your return was filed--or due--whichever is earlier. If you are audited and cannot produce the properly dated acknowledgments, the IRS can nix your deduction.

The same rules apply for donations of property, says Don Roberts, a spokesman with the IRS in Washington. Additionally, the rules stipulate that you must include a separate form with your tax return if you give more than $500 in total non-cash donations to charity during a given year.

It’s also important to note that the charity’s acknowledgment--even if it’s simply a form--must include information on whether or not you received anything of value for your contribution.

If your receipt does not include a disclaimer that says you received nothing of value in return for your contribution of $250 or more, ask the charity for a new acknowledgment, Roberts suggests.

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More Tax-Planning Tips

* Looking for more ways to cut your tax bill for 1994? Sign on to the TimesLink on-line service and check out a package of Times articles covering deductions, capital gains, tax strategies for middle-income families and how to survive an audit. Find out the most overlooked deductions, the most common audit triggers and the 66 industries that the IRS particularly targets for closer inspection. Jump: Taxes, or look under Money & Investing in the Business & Technology section. For information on how to get TimesLink, see the ad in today’s paper on page B4.

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Dates in U.S. Tax History

A little perspective reveals that income taxes have not always been taken for granted.

1862

Abraham Lincoln enacts emergency measure to pay for Civil War (minimum 3% rate).

1872

Lincoln’s income tax law lapses.

1894

Federal income tax enacted.

1895

Income tax ruled unconstitutional by U.S. Supreme Court in Pollack vs. Farmers Loan & Trust.

1909

16th Amendment proposed; would authorize Congress to collect taxes on income.

1913

Wyoming casts 37th vote, ratifying 16th Amendment. One in 271 people pays 1% rate.

1926

Revenue Act of 1926 reduces taxes: Too much money being collected.

1939

Revenue status codified. One out of 32 citizens pays 4% rate.

1943

One out of three people pays taxes. Withholding on salaries and wages introduced.

1954

875-page Internal Revenue Service code of 1954 passes. Considered the most monumental overhaul of federal income tax system to date.

1969

Tax Reform Act: Major amendments to 1954 overhaul.

1984

Reagan Tax Reform Act: Most complex bill ever; requires more than 180 technical corrections.

1986

Tax Reform Act reduces the number of tax brackets.

1993

Clinton’s Revenue Reconciliation Act passes with vice president casting deciding vote.

Source: Commerce Clearing House Inc.