Your Tax Return: What's New?
There's nothing radically different about filing your taxes this year, but you should be aware of a few of the changes resulting from new laws or IRS rules. They could save you some money, make filing simpler, and get your refund to you faster.After we look at the changes affecting your 1996 return, we'll take a look further down the road at how new tax laws affect your 1997 return. It's never too early to start to plan in order to take full advantage of the new tax law changes.
YOUR 1996 RETURN
Education Tax Break Is Reinstated
If your employer paid your tuition in 1996, you might be able to exclude up to $5,250 of the payments from your income. Congress reinstated an expired tax break for tuition reimbursements for 1995, 1996, and half of 1997. The exclusion does not apply to graduate level courses that began after June 1996, nor will it apply to any courses beginning after June 1997. You may be eligible for a refund if your employer reimbursed you for tuition during 1995, and you paid taxes on the reimbursement.
Business Miles Are Worth Slightly More
For 1996, the deduction for business use of your car is 31 cents per mile, up from last year's 30 cents.
Direct Deposit of Refunds Is Easier
This year, you no longer have to fill out a separate form to have the IRS deposit your tax refund directly to your bank account. Simply fill in your account number and bank information in the "Refund" section of your tax return (lines 60 a-d on Form 1040, lines 31 a-d on Form 1040A or lines 11 a-d on Form 1040EZ.)
Telephone Filing Is Open To More Taxpayers
Now, married couples filing joint returns can participate in the IRS's "TeleFile" program, as long as they qualify. Plus, TeleFilers can now ask for direct deposit of refunds. Over 22 million taxpayers whose 1995 tax returns indicate that they are potential TeleFile users have received a special tax package.
DOWN THE ROAD: Planning for Your 1997 Return
While these tax law changes take effect in 1997 and won't impact your 1996 return, taxpayers can take advantage of these tax law changes by beginning to plan now.
Spouses With No Earned Income Can Contribute Up to $2,000 to IRAs
The new tax law says that even if one spouse has no earned income, the IRA contribution limit for the couple is up to $4,000. Under prior law, a couple in this situation could not make a contribution of more than $2,250.
You Can Withdraw IRA Money Without 10% Penalty to Pay Medical Expenses,
If you are younger than age 59-1/2 and you withdraw money from an IRA to pay medical expenses that exceed 7.5% of your adjusted gross income, you won't have to pay the 10% premature withdrawal penalty that would otherwise apply. You also can withdraw the money to pay for health insurance if you've been unemployed for at least 12 weeks.
There Is a Hiatus on the Penalty for Too-Large Retirement Plan Withdrawals
For three years -- 1997, 1998, and 1999 -- the 15% excise tax on withdrawals from IRAs and retirement plans exceeding $160,000 will not apply.If You're Age 70-1/2 and Still Working, You Needn't Begin Retirement Plan Payouts.
You won't have to begin taking minimum distributions from retirement plans at age 70-1/2 if you're still employed. The new rule doesn't apply to IRAs.
Self-Employeds Can Deduct 40% of Health Insurance Premiums
Starting in 1997, the deductible percentage of self-employeds' health insurance premiums rises to 40%, from 30% in 1996. It continues to rise in 1998 and succeeding years, until 2006, when it reaches 80%. If you usually pay your premiums at the end of 1997, consider paying them in 1998 to take advantage of the higher percentage.
Unreimbursed Nursing Home Care and Other Medical Expenses May be Deductible
Within certain limits, unreimbursed costs for long-term care insurance premiums, nursing home expenses, and home care expenses, are deductible, if they exceed 7.5 percent of your adjusted gross income.
Certain Payments To The Terminally Ill Are No Longer Taxable
The terminally ill can now receive, tax free, certain payments from life insurance policies or viatical settlements -- payments made to terminally ill people who sell their life insurance policies to third parties to raise cash for current needs.
Business Miles Worth More
For 1997, the deduction for business use of your car is 31.5 cents per mile.
Adoption Credit Is Available
Those who adopt a child are eligible for a tax credit of up to $5,000 per child for certain adoption expenses, and up to $6,000 if the child has special needs. The credit starts phasing out for those whose adjusted gross income exceeds $75,000.
Small Businesses Can Start Medical Savings Accounts Programs
Businesses with fewer than 50 employees can set up these accounts under an IRS pilot program. Contributions and earnings on the MSAs generally won't be taxed, as long as the proceeds are used for medical expenses.
Up to $18,000 of Business Equipment Can Be Expensed
Beginning in 1997, small businesses and self-employeds will be able immediately to expense a maximum of $18,000 in business equipment purchased during the year. The maximum amount for 1996 is $17,500. The maximum is slated to go up every year until the year 2003, when it will reach $25,000.
The AICPA is the national professional organization of CPAs with more than 331,000 members in public practice, business and industry, government and education.
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