1999 TAX HINTS

by Sharon Cullars

Before you file your 1999 tax return, you should know about certain tax changes that may affect your taxable income. First of all, you may be eligible for tax deductions or credits that you aren’t aware of (Note that although both tax deductions and tax credits offer relief, they operate differently; tax deductions reduce your taxable income, while tax credits reduce your tax liability, dollar for dollar). Another way to reduce your taxable income is through miscellaneous itemized deductions, some of which we will go into later. Also, the IRS has made it easier for those with access to PCs to file their taxes electronically.

So, what’s new for the 1999 tax year? First of all, for those of you with children, the tax credit has been raised to $500 for each child under 17. However, the credit decreases once the adjusted gross income (AGI) gets above $110,000 for couples filing jointly; $75,00 for single parents; and $55,000 for marrieds filing separately. You lose approximately $50 for every $1000 above these amounts.

For those of you with home offices from which you operate a business, it is now easier to write off your home office expenses. The one restriction is that you cannot have another "fixed location" where you do "substantial administrative or managerial activities". Check IRS Publication 587, "Business Use of Your Home" for more details.

Another break for the self-employed is a write-off deduction of up to $19,000 on business equipment purchased in 1999. You do not have to depreciate your costs over a certain period of time in order to take the deduction. The items covered include computers, fax machines and printers (you should have copies of your receipts). Your write-off is limited to the taxable income you made from your business. Read IRS Publications 946, "How to Depreciate Property" and 535, "Business Expenses".

Also if you are self-employed or a small business owner and pay for your own health insurance, you may be able to write off 60% (up from 45% in 1998) of your premiums. Additionally, you don’t have to itemize nor qualify for itemized medical deductions. Find more information in IRS Publication 502, "Medical & Dental Expenses".

Student loan deductions have been raised to $1,500 from $1,000 in 1998. Although itemization isn’t required, there are some restrictions: the deduction must be claimed for the first 60 months in which interest payments are required; it is not available to joint filers with incomes above $75,000 and single filers with incomes above $55,000; parents cannot claim the deduction if the loan was taken out by the child. Read IRS Publications 970, "Tax Benefits for Higher Education" and 4, "Student’s Guide to Federal Income Tax"

If you used your car for business while working for your employer (and you were not reimbursed), the IRS standard mileage rate has dropped to 31 cents per mile as of April 1, 1999, down from 32.5 centers per mile. Publication 463, "Travel, Entertainment, Gift & Car Expenses"

Something new: for smokers trying to quit, you are now eligible for the itemized medical eduction and can deduct the cost of prescription drugs for nicotine withdrawal (only if you were not reimbursed for these expenses by your health insurance). However, the deduction does not include the costs of non-prescription nicotine gum or patches. You can itemize your expenses on Schedule A, but note that all medical deductions must exceed 7.5% of your AGI.

Contributions to a traditional IRS in 1999 may be deductible in whole or part. partial deductions are available to joing filers with AGIs of less than $61,000 and to single filers with incomes under $41,000. Income limits for full deductions on IRA contributions by participants in qualified plans has increased to $51,000 (joint) and $31,000 (single). Read IRS Publication 590, "Individual Retirement Arrangements, IRAs, Roth and Education IRAs".

Child Care & Dependent Care Credit may be available to you if you pay for the care of a child under the age of 13 (or a spouse or disabled child of any age). You’ll need to provide the Social Security Number or the Tax ID Number for each caregiver listed. Credits claimed can be as much as $720 for one child or $1,440 for more than one. More information is provided in IRS Publication 503.

The Earned Income Credit is available to workers with earnings under $10,200 (no children), $26,928 (one child) or $30,580 (more than one child). The credit ranges from $347 to $3,816. Read Publication 596.

For those who paid tuition for themselves or a family member to go to college or graduate school, there are two higher education credits:

• The Hope Scholarship credit goes up to $1,500 per student attending the 1st or 2nd year of college; or

• The Lifetime Learning credit goes up to $1,000 per family for members at any level of higher education.

What exactly qualifies as a MID? See the following:

• fees and expenses derived from tax preparation, including tax preparer fees, books, magazines and computer programs. You can even itemize your gas used to go visit your tax preparer.

• investment expenses, including books, magazines or computer programs that relate to investment issues. Also advisory fees, trust fees, Keogh or IRA fees (paid separately rather than directly deducted from your account). Long-distance calls or mileage incurred to see your stockbroker.

• expenses incurred in seeking a new job, even if you already were employed at the time. These include resumes, postage, letters, travel expenses, phone calls and other expenditures.

• legal fees that help save or protect your money. For example, payments relating to divorce proceedings (such as alimony) can be categorized as a MID.

• travel expenses incurred for business purposes that are not reimbursed by your employer, including air, rail, bus fares, care, taxis, meals, telephone calls, tips, etc. These expenses must have been incurred in travel away from home. Note that regular commutes within the general area of your home do not qualify.

• meals and entertainment expenses incurred during business. If you have taken a client or co-worker to a work-related meal that was not reimbursed by you remployer, you may deduct the expense. If the expense was over $75, you must show a receipt. For that under $75, a diary notation with names, dates, places, costs and business discussions will suffice.

• other MIDs include business gifts (maximum cost - $25 per person), business supplies, education expenses to maintain or improve your skills in your current position, union dues or professional society dues, as well as gambling losses that do not exceed your winnings for the year.

Electronic filing (or e-filing, for short) is easier this year. Why should you do so? Well, if you are expecting a refund, filing electronically will help you get your refund that much sooner. In addition, delivery is guaranteed, so there is no last minute rush to the post office. You will receive an e-mail confirmation within 48 hours of your submission. If there is a mistake in your calculations, it will be automatically flagged, and the form will be returned to you for correction. In some states, you can also file your state return simultaneously.

You have two options for e-filing:

1. you can purchase a CD-Rom software program such as Intuit/Quicken’s Turbo Tax or H & R Block’s Kiplinger Tax Cut; or

2. you can file online using an IRS-approved site such as Turbo Tax and Tax Cut .

For more comprehensive information, also check out the official IRS site at www.irs.gov.

Well, only one thing left to say: Have a good filing and many happy returns (Oh come on, I had to say that!)