Don't count on zipping through '87 tax forms

If you haven't started working on the 1987 tax forms, start now. Right now. That's the advice of tax experts, accountants, and preparers as they await the onslaught of clients looking for help with their tax returns. This year, those clients will discover changes in the old tax forms, and several new forms, one of which the Internal Revenue Service estimates will take nearly an hour and a half for the average taxpayer to fill out.

And if they don't get going soon, some prospective clients may not be able to find a tax preparer, while those that have one may find the preparers are charging more because it will take them longer to complete the forms.

Just because you should start early, however, doesn't mean you have to file early. If you owe taxes, there's no reason to pay Uncle Sam any sooner than necessary.

And if you're stymied by some of the forms, or you can't get all the information needed to complete all of them, it may be necessary to file for an extension. In that case, an estimated tax payment still has to be made by April 15, which could mean getting an early start to come up with an estimate, and maybe the money.

``People who think they're going to knock these forms off on April 14 are going to be in for a rude awakening,'' says Joseph M. Flynn, a tax partner with Arthur Young & Co.

``Tax reform has been called the Accountants Full Employment Act,'' says Thomas J. McFarland, a financial planner in Concord, Mass. ``Some of the forms are awful.'' Until this year, for instance, taxpayers claiming deductions for home mortgage interest and property taxes only had to fill in a couple of lines on Schedule A, the form used for itemized deductions. The deduction now has to be computed on a new, two-page form - after reading four pages of instructions.

Then there's Form 8598. Anyone who refinanced a mortgage to take advantage of lower interest rates, took out a home-equity loan, or obtained a mortgage for anything other than buying a primary residence after Aug. 16, 1986, will have to complete this one. More than 13 million people will be using it, and the Internal Revenue Service has estimated it will take one hour and 24 minutes on this form alone to figure out how much of the interest on that mortgage is deductible.

The reason is that under tax reform, there's fully deductible interest and partly deductible interest. Soon, some interest won't be deductible at all.

Before, all interest was fully deductible. Now, the full deductions for mortgage interest and ``points'' to buy a primary residence remain, but the deduction for consumer interest, like credit card interest and auto loans, is being phased out over five years. Only 65 percent of the consumer interest incurred last year, for example, is deductible.

Taxpayers with children have another chore to take care of. The new tax rules require all children over the age of 5 to have their own social security numbers. The new 1040 forms even have a place to include those numbers. If a child doesn't have one, remember that it takes at least three to four weeks to get one from the Social Security Administration. In some areas, a backlog of requests for numbers could delay this process, so you may need a head start.

If those children have any income from work, savings, or investments - including their college-education funds - forms will have to be filed for them, a process that could further complicate their parents' returns. ``We used to be able to do the taxes for a client's children early and get them out of the way, even if the parents had to file for an extension,'' says Kaye Ferriter, a tax partner in the Boston office of Coopers & Lybrand, the accounting firm. ``Now you have to do your taxes before you do your child's taxes.''

Under the new ``kiddie tax'' rules, children who have more than $1,000 in unearned income (like dividends and interest) must figure their tax on Form 8615. But to complete 8615, parents must first complete their returns. Here's why:

The first $500 in unearned income is not taxed.

The second $500 is taxed to the child in the lowest bracket.

Unearned income over $1,000 is taxed to the child at the parent's top marginal rate.

Another reason for getting an early start is to find out now if tax preparation assistance is needed, assuming you don't already have a tax preparer or are not satisfied with the one you've been using.

``Most people won't be comfortable doing their own taxes this year,'' says John Blankinship Jr., a financial planner in Del Mar, Calif. ``The forms and schedules are very complex, no doubt about it.''

If you don't already have a tax preparer by April, and you believe your returns require more sophistication than is available from walk-in firms like H&R Block, it may not be possible to get an appointment with a preparer or tax accountant.

Taxpayers who have used an accountant or tax preparer in the past will find another reason to start early, and a reason they'll be paying more to have their taxes done this year. These people are - or may be - subject to the alternative minimum tax (AMT), Congress's attempt to make sure everyone pays at least some of their fair share of taxes.

Basically, the AMT is of concern to a small percentage of taxpayers who are at upper income levels and have a large number of deductions known as tax ``preference'' items. The AMT is supposed to eliminate many of the advantages of tax shelters. Tax Reform put more people in the AMT bracket, but to find out if they're in it, taxpayers will have to compute their taxes twice, once using their regular deductions and once using the AMT.

In some instances, taxpayers who start preparing their returns early won't be able to file early, or even by April 15.

``Some of the new rules are in a technical-provisions bill pending before Congress,'' says Harry Salerno, a partner at O'Connor & Drew, an accounting firm in Braintree, Mass. ``It probably won't pass before April 15.'' These rules, covering things like certain business deductions, could mean applying for an extension. But if taxes are due, an estimated payment still has to be filed with the form asking for the extension.

``There's going to be a large group of people who are going to find things very similar to what they're used to,'' Ms. Ferriter at Coopers & Lybrand says. ``But there's going to be another group of taxpayers, some of whom aren't necessarily high-income, for whom the reporting is going to be substantially more complex.''