Eyeing small changes in rules since you last filed
Taxpayers will face few changes on their tax forms this year.
Much of the material should be familiar. All tax changes involving dollar amounts for tax year 2000 are clearly spelled in this year's tax guides and worksheets.
Yet those who file more than just a short form must again deal with a complex system of rules and guidelines, says Maggie Doedtman, manager of tax training for tax preparation firm H&R Block, in Kansas City, Mo.
For individuals, the biggest differences this year will be in the details - the numbers, says Ms. Doedtman.
Forget last year's numbers, she says, since "many of them have been adjusted upward to compensate for inflation."
For example, the interest deduction on qualified student loans is $2,000, up from $1,500 last year. Personal-exemption levels have risen to $2,800 per person, up from $2,750. The standard mileage deduction for operating a car, van, pickup, or panel truck for business purposes rose to 32-1/2 cents per mile. If you use your car for charitable purposes, you can deduct the mileage at a rate of 14 cents a mile.
Maximum tax-exempt contributions in 401(k)s and similar retirement accounts hit $10,500, up $500 from last year. And Americans who live overseas can now possibly exclude up to $76,000 of earned income. That is up from $74,000.
Back on the home front, if you paid a housekeeper or other at-home workers less than $1,200 last year, you don't owe Social Security or Medicare taxes on their wages. That amount increased from $1,100 in 1999.
Those who care for foster children should be aware that the definition of a "foster child" has been altered slightly, notes Doedtman. As a result, a taxpayer who cares for a boyfriend's or girlfriend's child may no longer claim the youngster as a foster child and is therefore ineligible for child-related credits.
One caution for long-form filers: If you are in a high-income bracket, you could lose all or part of your itemized deductions. Limits on itemized deductions start to kick in when an individual's gross income rises above $128,950.
Seniors should also pay close attention to their tax forms. Last year, Congress repealed a law which had made taking a job financially prohibitive for those age 65 to 69. Seniors who worked more last year should expect to report higher incomes. They are also likely to face higher tax bills.
Perhaps the biggest change this tax year, says Tom Pudner, a personal financial planning specialist with accounting and consulting firm KPMG in Washington: You've got an extra day this year to file. April 15 falls on a Sunday, so you have up to midnight April 16 to file electronically or drop your form in the mail.
Besides this year's changes, it is also important to look ahead to 2002 since some changes that will occur on next year's tax forms are already affecting many individuals.
For example, the standard mileage for business will again rise, to 34-1/2 cents per mile. The interest deduction on student loans will hit $2,500. And capital-gains rates will be lowered, with the 10 percent rate for those in lower income brackets dropping to 8 percent.
Looking even farther ahead, in 2006 the 20 percent capital-gain rate will drop to 18 percent on qualified five year gain for property held beginning after 2000. A person can also elect to sell and then reacquire qualified property held on Jan. 1, 2001, to qualify for the 18 percent rate. But that means that they must pay the tax on the gain from the sale in 2001. Once a taxpayer elects to make the sale, the election cannot be reversed. If a person chooses to pursue this option, experts agree, it is best to first talk to a qualified tax preparer.
(c) Copyright 2001. The Christian Science Publishing Society