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The Online Advisor - May 1999
Use new tax rules in your 1999 planning
As you get your tax planning for 1999 underway, be aware of the many tax changes that went into effect this year. Among them are the following:
* Up to $1,500 of interest paid on higher education loans is deductible in 1999. The deduction phases out at higher income levels ($40,000-$55,000 for singles and $60,000-$75,000 for couples).
* The child tax credit increases to $500 for each child under 17 (up from $400 for 1998). The credit starts phasing out at $75,000 of income for singles and heads of household and at $110,000 for couples.
* If you use part of your residence for business, you might find it easier to deduct part of your expenses for your home office in 1999. Starting this year, taxpayers will no longer be denied a deduction when the home office is used only for administrative and managerial tasks (such as billing clients or customers, setting up appointments, etc.) if there is no other location to perform these tasks.
* Self-employed individuals, partners, and owners of more than 2% of an S corporation may deduct 60% of medical insurance premiums paid in 1999, an increase from 45% in 1998.
* The so-called "unified credit" exempts a certain amount of your estate from estate taxes. For 1999, this amount increases to $650,000 (up from $625,000 for 1998).
If utilized to its fullest extent, this exemption, which applies to you and your spouse individually, allows the two of you to make tax-free bequests totaling $1,300,000 under the 1999 limit. Wills and other estate planning documents should be changed, if necessary, to take full advantage of this increase.
* Certain business tax credits have been extended through June 30, 1999. These include the research tax credit, the work opportunity tax credit, and the welfare-to-work tax credit.
* The election to expense rather than depreciate newly acquired business equipment increases from the 1998 maximum of $18,500 to $19,000 for 1999.
* The prior-year safe harbor for estimated taxes required of individuals with more than $150,000 of income increases from 100% of prior year tax liability to 105%.
As you consider your tax-cutting options, and before making important financial or business decisions this year, call us to discuss these and other tax changes.