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January 01, 1998
Tax Time 1998
Tax Packages
The Internal Revenue Service will send about 60 million income
tax packages this year. The mailout costs about $10.3 million for printing and $10.6
million for postage. Most taxpayers will get their tax packages soon after New Year's Day.
The IRS expects to receive around 123 million tax returns in 1998, with continued growth
in filing by telephone and by computer.
About one-third of the tax packages, about 26 million, will
contain no tax forms. These TeleFile packages invite recipients to file by telephone. The
packages contain a "tax record" which helps the taxpayer prepare for the call
and serves as a record of filing. TeleFile is available for taxpayers who do not have
dependents, whether they are single or married persons filing jointly.
Last year, the IRS eliminated its postcard program for those
who used a paid preparer the previous year. The IRS had sent a label with the taxpayer's
name, address and Social Security number (SSN) for use on the tax return, along with a
postcard that the person could return to request a regular tax package. However, few
labels were used and few packages requested. Eliminating the mailing saved about $10.6
million in printing and postage costs. This year, the IRS expects to save an additional
$850,000 by sending such postcards instead of tax packages to 6.9 million taxpayers who
used a computer to prepare or file their tax returns last year. The label may be placed on
the tax return or signature form that the taxpayer will use this year. The pre-printed
label helps to ensure accuracy in processing. The mailing also has a reply card for those
who want a regular tax package sent to them.
The IRS is again sending a payment voucher, Form 10404, with
all Form 1040 tax packages. Taxpayers should mail the vouchers with their payments. The
vouchers help the IRS to process payments more efficiently and accurately.
Forms and publications are available via computer from the IRS
Website at www.irs.ustreas.gov
or the Internal Revenue Information Services bulletin board at 703-321- 8020, The IRS
TaxFax offers forms and instructions by return fax -- call (703) 368-9694 from a fax
machine.
Tax Forms: What's New for '97?
Capital Gains Tax Rates -- The top tax rates on capital gains
are lower for most transactions, including installment payments received, after May 6,
1997, on property held more than one year. For transactions after July 28, 1997, the first
two rates apply only to property held more than 18 months. The rates are: 20% for most
gains, but 10% for gains that would be in the 15% tax bracket; 25% for gains resulting
from the depreciation of real estate; 28% for gains on collectibles and for gains after
July 28, 1997, on property held more than one year but not more than 18 months.
Schedule D (Form 1040) will take taxpayers step-by-step
through the computations. All taxpayers with capital gains will have to use Schedule D.
Taxpayers who receive only capital gain distributions from mutual funds will no longer be
able to report these distributions directly on Form 1040.
Sale of Residence -- For sales after May 6, 1997, up to
$250,000 of gain may be excluded ($500,000 on a joint return) if the taxpayer has owned
and used the home as a principal residence for two of the five years preceding the sale.
This tax break may be used only once every two years. A taxpayer who fails to meet the
two-year residency requirement because of a change in health, employment, or unforeseen
circumstances may prorate the maximum exclusion by the percent of the two-year requirement
met. The once-in-a-lifetime exclusion for those age 55 or older and the rollover
provision, which deferred gain when a taxpayer bought a replacement residence, were both
repealed, but may be used, at the taxpayer's option, for sales before August 6, 1997.
Taxpayer Identification Numbers (TINs) Needed -- A taxpayer
identification number -- generally the Social Security Number (SSN) -- must be provided
for each person claimed as a dependent or qualifying person for the child and dependent
care credit. If a TIN is incorrect or missing, the exemption and the credit may not be
allowed. There is no longer an exception for children born late in the year. Non-resident
or resident aliens who are not eligible for an SSN should get an Individual Taxpayer
Identification Number (ITIN) by filing Form W7 with the IRS.
-Adoption Taxpayer Identification Numbers (ATINs) -- A
taxpayer who has a child for whom an adoption is not yet final may need this number to
claim the child as a dependent and to claim any child care credit if the child's SSN
cannot be obtained.
Adoption Expenses -- For an adoption that became final in or
before 1997, a taxpayer may claim a tax credit of up to $5,000 ($6,000 for a child with
special needs) for qualifying adoption expenses paid in 1997. A person who receives
employer- provided adoption benefits may exclude up to the same amount from income. The
credit/exclusion amount is phased out as the taxpayer's adjusted gross income (AGI) rises
from $75,000 to $115,000.
Employer-Provided Educational Assistance Benefits -- The
exclusion from gross income for up to $5,250 of qualified employer-provided educational
assistance benefits was again extended and will be available for undergraduate level
courses beginning before June 1, 2000.
Individual Retirement Arrangements (IRAs) -- On a joint
return, up to $2,000 of earnings may be contributed to each spouse's IRA. Previously, if
only one spouse had earned income, the total contributions were limited to $2,250. The
early withdrawal penalty does not apply to IRA distributions used to pay medical expenses
in excess of 7 1/2% of AGI, or to pay health insurance premiums if the taxpayer has
received unemployment compensation for 12 consecutive weeks.
Self-Employed Health Insurance Deduction -- Self-employed
persons may deduct up to 40% of their health insurance premiums for every month they were
not eligible to participate in an employer-sponsored health plan.
Accelerated Death Benefits / Long-Term Care -- Terminally ill
persons may exclude accelerated death benefits they receive from a life insurance contract
or a viatical settlement provider. Chronically ill persons may exclude such settlements --
as well as payments under a long-term care contract -- up to the amount of unreimbursed
qualified long-term care expenses, or up to $175 a day for payments made on a periodic
basis rather than as a lump sum. Long-term care insurance premiums and unreimbursed
expenses may be deductible as medical expenses.
Earned Income Credit (EIC) -- A Social Security Number (SSN)
must be listed for each qualifying child to claim the earned income credit. If the SSN is
incorrect or missing, the credit may not be allowed. Generally, persons with investment
income of more than $2,250 can't claim the EIC. Those who claim the EIC when they are not
eligible may be barred from future EIC claims for as long as 10 years.
Standard Mileage Rates -- You may deduct 31 1/2cents a mile
for all business miles driven, up one-half cent from 1996. The rates for medical and
moving expenses (10 cents) and charitable contributions (12 cents) are unchanged.
Inflation Adjustments for 1997
The filing requirements, personal exemption, standard
deduction and maximum Earned Income Credit amounts are adjusted each year for inflation.
The 1997 gross income filing requirements are:
Single ......................................$ 6,800
Head of household.$ .........................$ 8,700
Married filing jointly.......................$12,200
Married filing separately....................$ 2,650
Qualifying widow(er).........................$ 9,550
Different amounts apply if the taxpayer or spouse is age 65 or
older, or if the taxpayer can be claimed as a dependent on someone else's return. There
are also other specific situations which require the filing of a return, such as when the
net earnings from self-employment are $400 or more.
The personal exemption amount for 1997 is $2,650 -- $100 more
than last year. Higher income taxpayers may have to reduce the personal exemption amount
they claim if their adjusted gross income exceeds:
Single..........................................$121,200
Head of household ..............................$151,500
Married filing jointly or Qualifying widow(er)..$181,800
Married filing separately ......................$ 90,900
The tax package has a worksheet for these taxpayers to figure
their personal exemption amount.
The increased standard deduction amounts for 1997 are:
Single ..........................................$4,150
Head of household ...............................$6,050
Married filing jointly or Qualifying widow(er)...$6,900
Married filing separately .......................$3,450
Different amounts apply if the taxpayer or spouse is blind or
is age 65 or older, or if the taxpayer can be claimed as a dependent on someone else's
return.
The Earned Income Credit limits for 1997 are:
Income Limit Maximum Credit
One qualifying child..............$25,760........$2,210
Two or more qualifying children.. $29,290........$3,656
No qualifying children............$ 9,770........$ 332
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