January 2000 January 2000
Tax Facts for the Year 2000
Jamie H. Thompson, thompsonja@missouri.eduFor the past two years, we have been bombarded with tax law changes. The greatest number of changes came with the Tax Reform Act of 1997.
Taxpayers, starting in 1998, were able to take a maximum child tax credit of $400 for each qualifying child under the age of 17. The maximum credit increased to $500 for 1999 and subsequent years.
Taxpayers also had four educational incentives available to them, beginning with the tax year 1998. The Hope Scholarship Credit allowed taxpayers to claim a maximum credit of $1,500 for expenses paid the first two years of post-secondary education.
The Lifetime Learning Credit allowed taxpayers to claim a maximum credit equal to 20% of up to $5,000 of expenses incurred during the taxable year for qualified tuition and fees for post-secondary education, including any course of instruction to acquire or improve job skills.
The Act also created a new education funding vehicle, called an Education Individual Retirement Account (education IRA), for the purpose of paying the qualified higher education expenses of a designated beneficiary.
The Deduction for Interest on Education Loans provided a maximum deduction of interest paid on qualified education loans. The maximum limit of $2,500 was to be phased in over a four year period--$1,000 in 1998; $1,500 in 1999; $2,000 in 2000; and $2,500 in 2001.
Contributions to a new individual retirement account, the Roth IRA, began in 1998. Important features were:
contributions to the account were not deductible,
qualified distributions from the account were not taxable, and
earnings on the account are taxable only if and when there is a distribution, which is not a qualified distribution.
Taxpayers were also allowed to exclude up to $250,000 of the gain ($500,000 for married couples filing a joint return) realized on the sale or exchange of a principal residence.
Beginning in 1998, the unified estate and gift tax credit would increase annually, until the maximum estate value exempt from tax reaches $1 million in 2006 ($650,000 in 1999 and $675,000 in 2000).
The $10,000 annual exclusion for gifts would be indexed annually to reflect inflation, beginning in 1999.
With the tax changes in 1998, the self-employed health insurance deduction percentage increased to 45% in 1998 and 1999 and 50% in 2000 and 2001.
The rate taxpayers could claim for charitable mileage increased in 1998 to 14 cents per mile.
The Social Security wage base will increase from $72,600
in 1999 to $76,200 in 2000. All wages and self-employment income are subject to the Medicare payroll tax.
The following inflation adjusted projections have been made by CCH Incorporated, 1999:
Standard deductions for married, filing jointly are projected to increase from $7,200 in 1999 to $7,350 in 2000. Single increases from $4,300 in 1999 to $4,400 in 2000.
The Kiddie standard deduction will remain at $700.
The marginal tax rates are also projected to increase accordingly.
Generally, each year tax rates and deductions are adjusted for inflation.
This is a review of important tax changes that have occurred over recent years. These tax changes may have an impact on your tax and financial planning decisions for this coming year and future years. It is very important to consult your tax preparer before making any final decisions.
In contrast to 1997 and 1998, 1999 was a quiet year for tax changes. So far, the year 2000 proves to be another quiet year. This may change at anytime, as we well know from past experience.
Sources: Tracy Spry, CPA, Warsaw, MO; Highlights of Tax Provisions www.irs.gov/plain/hot/tax-law; CCH Incorporated, 1999 www.tax.cch.com.
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