Tax Tips From Michelle Biess, CPA (Tax Tip Archive)
December 1998
Although no major new tax legislation was passed in 1998, this year most of the credits and deductions from the 1997 tax legislation go into effect.
Significant aspects of the tax provisions effective for 1998 are provided here for your information.
A new tax credit of $400 for each dependent child under 17 is in effect for married couples with income under $110,000 and single parents with income under $75,000.
These credits phase out above these income limits. This credit increases to $500 for 1999.
There has been a decrease in the long-term capital gains tax rate from 28% to 20% (10% for taxpayers in the 15% tax bracket), and the 18 month holding period has been reduced to 12 months effective January 1, 1998.
The Roth IRA is a new IRA available to joint taxpayers with income under $160,000 and single taxpayers with income under $110,000.
There is no tax deduction for the IRA contribution but the funds and any earnings can be withdrawn tax-free after 5 years for taxpayers age 59 ½ or older.
The HOPE Scholarship Credit allows taxpayers to claim a maximum credit of $1,500 for expenses paid for the first two years of college.
The Lifetime Learning Credit allows taxpayers to claim a maximum credit of $1,000 for tuition and fees for post-secondary education expenses paid after June 30, 1998.
Both credits cannot be used for the same person and they phase out above $100,000 for joint filers and $50,000 for single taxpayers.
Up to $1,000 in student loan interest is deductible in 1998 on loans during the first 60 months of repayment. This deduction is also phased out for joint taxpayers with income over $75,000 and single taxpayers with income over $55,000.
The standard mileage rate for business travel has been increased to 32.5 cents per mile for 1998.
The rate for medical mileage remains at 10 cents per mile and charitable mileage remains at 14 cents per mile.
Early withdrawals from an IRA used to pay higher education expenses can be made without the 10% penalty.
In addition, withdrawals of up to $10,000 are permitted for qualified first-time home buyers.
The withdrawal in each case would still be subject to regular income tax.
Once again, my office offers a full range of tax services including free electronic filing of Federal income tax returns for 1998 with direct deposit of tax refunds.
Direct deposit of tax refunds is also available for those taxpayers who wish to file paper returns.
Please call my office if you have questions about your tax situation or need assistance with tax planning If you refer someone to me and I prepare their taxes, I will pay you a referral fee of $20. Best wishes for a happy and prosperous New Year.
Sincerely,
Michelle M. Biess, CPA