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New
law changes for the 1999 tax year
The tax laws
enacted in the last few years contain important new provisions that
are effective for the first time in 1999. In addition, many established
tax breaks are liberalized beginning in 1999. To inform you of what's
new in the tax rules, here's a summary of the major tax changes
for 1999, broken down into three categories: Personal Income Taxes,
Tax Changes for Business, and Estate and Gift Tax Changes. All of
the new rules are effective on Jan. 1, 1999, except as otherwise
noted.
Personal
Income Taxes
Increased child tax credit. Eligible individuals may claim a tax
credit of $500 for each qualifying child under 17 (one for whom
you can claim a dependency exemption and who is your child or
other direct descendant or your eligible foster child). The credit
begins to phase out when adjusted gross income as specially modified
exceeds $110,000 for joint filers, or $75,000 for single filers
and heads of households, and $55,000 for married filing separately.
Boosted deduction
for education loan interest. You can deduct up to $1,500 of interest
paid on an education loan, but the deduction phases out over $40,000
to $55,000 of adjusted gross income as specially modified ($60,000
and $75,000 on joint returns).
Higher estimated
tax payments for some. Your estimated tax burden for 1999 may
increase slightly if your adjusted gross income for 1998 was over
$150,000 ($75,000 for married filing separately). If you fall
in this category, you will escape an estimated tax underpayment
penalty for 1999 if your estimated tax payments for 1999 are at
least equal to (1) 105% of the tax shown on your 1998 return,
or (2) 90% of the tax shown on your 1999 return, whichever is
less.
More favorable
IRA deduction phaseout rules. The income phaseout ranges for deductible
IRA contributions have been increased for active participants
in employer-sponsored retirement plans. For 1999, the IRA deduction
phases out over $31,000 to $41,000 of adjusted gross income for
single taxpayers, and over $51,000 to $61,000 for joint filers.
Tax Changes
for Business
Home-office deduction restored for many. Home-office deductions
can be claimed if a room or area in the home is used regularly
and exclusively as a principal place of business or a place to
meet or deal with customers or clients in the ordinary course
of business. An employee's home-office use must be for the convenience
of the employer. A 1993 Supreme Court decision barred taxpayers
from claiming their home office was a principal place of business
if they performed their administrative or management functions
in the home, but provided goods or services outside of the home.
Effective
for tax years beginning after 1998, however, taxpayers can claim
home office deductions under the principal place of business test
if they use a portion of their home for the administrative or
management activities of their business, but only if there is
no other fixed location where they conduct substantial administrative
or management activities. The liberalized rule benefits many different
types of business people and professionals, including doctors
who practice outside of the home but do their paperwork from a
home office, performing artists such as actors who manage their
careers from a home office, consultants who provide most of their
services outside of the home, retailers who do their paperwork
from a home office, and outside salespeople and sales reps who
use their home offices as a base of operations and a place to
do their paperwork.
Boosted self-employed'
health insurance deduction. A self-employed person may deduct
as a business expense 60% of the amount paid for medical insurance
on himself, his spouse, and his dependents. The deduction isn't
available to an individual who's eligible to participate in any
subsidized health plan maintained by any employer of the individual
or by any employer of the individual's spouse.
Higher expensing
limit. The maximum amount of equipment purchases that can be expensed
(currently deducted instead of being depreciated over a period
of years) is $19,000.
Lower business
mileage rate. On April 1, 1999, the simplified deduction for business
auto use will drop from 32.5¢ to 31¢ per business mile traveled.
Revised depreciation
rules. In general, an alternative minimum tax (AMT) adjustment
must be made if a business claims 200% declining balance depreciation
for property such as machinery and equipment for regular tax purposes.
Estate
and Gift Tax Changes
The following favorable changes kick in this year:
The first
$650,000 of transfers are exempt from estate and gift taxes through
a larger "unified credit." An executor may elect to exclude from
the gross estate up to 40% of the value of land subject to a qualified
conservation easement meeting certain requirements and subject
to a dollar cap. This dollar cap is $200,000 for 1999. If certain
conditions are met, an executor may elect to value qualified real
property used for farming purposes or in a trade or business on
the basis of the property's value for its actual use, rather than
on its highest and best use. The total decrease in the value of
all real property under this election may not exceed $760,000
for 1999.
Be sure to
consult with a tax advisor for proper planning and implementation
of tax savings ideas to be sure they are right for you.
C.
David Pitzer, CPA, PC
118
Two Mile Pike
Goodlettsville, TN 37072
(615) 851-2727
Fax: (615) 851-8711
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