Standard Deduction Amount Increased
The standard deduction for taxpayers who do not itemize deductions
on Schedule A of Form 1040 is, in most cases, higher for 2000 than it
was for 1999. The amount depends on your filing status, whether you
are 65 or older or blind, and whether an exemption can be claimed for
you by another taxpayer. The 2000 Standard Deduction Tables
are shown in Publication 501,
Exemptions, Standard
Deduction, and Filing Information.
Exemption Amount Increased
The amount you can deduct for each exemption has increased from
$2,750 in 1999 to $2,800 in 2000.
You lose all or part of the benefit of your exemptions if your
adjusted gross income is above a certain amount. The amount at which
the phaseout begins depends on your filing status. For 2000, the
phaseout begins at $96,700 for married persons filing separately,
$128,950 for single individuals, $161,150 for heads of household, and
$193,400 for married persons filing jointly. If your adjusted gross
income is above this amount, use the Deduction for Exemptions
Worksheet in the Form 1040 instructions to figure the amount you
can deduct for exemptions.
Allowance of Tax Benefits for Kidnapped Children
Effective for tax years ending after December 21, 2000, a child who
has been kidnapped may still qualify you for certain tax benefits.
Both of the following statements must be true.
- The child must be presumed by law enforcement authorities to
have been kidnapped by someone who is not a member of the family of
you or the child.
- The child must have qualified as your dependent for the part
of the tax year before the kidnapping.
If both statements are true, the child is treated as your
dependent in determining whether you can claim the following tax
benefits.
- The child's dependency exemption.
- The child tax credit.
- Head of household or qualifying widow(er) with dependent
child filing status.
If the child lived with you for more than half the part of the year
before the date of the kidnapping, the child is treated as living with
you for more than half of the year. This means you can claim the
earned income credit using that child if you meet all the other
requirements.
This treatment applies for all tax years ending during the period
that the child is kidnapped. However, it does not apply as of the
first tax year beginning after the calendar year the child is
determined to be dead (or, if earlier, the year the child would have
reached age 18).
For more information about the dependency exemption and filing
status rules, see Publication 501,
Exemptions, Standard
Deduction, and Filing Information. For more information on the
child tax credit or the earned income credit, see the instructions for
Form 1040 or Form 1040A.
Student Loan Interest Deduction Increased
If you pay interest on a student loan, you may be able to deduct
part or all of the interest you paid. The maximum amount you can
deduct for student loan interest increased to $2,000 in 2000. The
deduction was limited to $1,500 in 1999. For more information on the
student loan deduction, see Publication 970,
Tax Benefits for
Higher Education.
Limit on Itemized Deductions Increased
You lose all or part of your itemized deductions if your adjusted
gross income is above a certain amount. In 2000, this amount is
increased to $128,950 ($64,475 if married filing separately). For more
information and a worksheet to figure the amount you can deduct, see
the instructions for line 28 of Schedule A (Form 1040).
Medical Expense for Conferences
You can include in medical expenses amounts paid for admission and
transportation to a medical conference if the medical conference
concerns the chronic illness of you, your spouse, or your dependent.
The costs of the medical conference must be primarily for and
necessary to the medical care of you, your spouse, or your dependent.
You must spend the majority of your time at the conference attending
sessions on medical information.
The cost of meals and lodging while attending the conference are
not deductible as medical expenses.
Employee Business Expenses
Standard mileage rate.
If you use your car for business, you can figure your deduction for
business use based on either your actual costs or the standard mileage
rate. For 2000, the standard mileage rate for the cost of operating
your car, including a van, pickup, or panel truck, is increased to 32 1/2 cents a mile for all business miles.
Car expenses and use of the standard mileage rate are explained in
chapter 4 of Publication 463,
Travel, Entertainment, Gift, and
Car Expenses.
Depreciation limits on business cars.
The total section 179 deduction and depreciation you can take on a
car (that is not a clean-fuel car) you use in your business and first
place in service in 2000 cannot exceed $3,060. Your depreciation
cannot exceed $4,900 for the second year, $2,950 for the third year,
and $1,775 for each later year.
For information on the increased limits for clean-fuel cars, see
chapter 4 in Publication 946,
How To Depreciate Property.
Increased section 179 deduction.
The total cost of section 179 property that you can elect to deduct
is increased from $19,000 to $20,000 for 2000. For tax years after
2000, this amount will increase as shown below.
|
Maximum |
| Tax Year |
Deduction |
| 2001 and 2002 |
$24,000 |
| After 2002 |
25,000 |
For more information on the section 179 deduction, see chapter 2 in
Publication 946,
How To Depreciate Property.
Meal expenses when subject to "hours of service" limits.
Generally, you can deduct only 50% of your business-related meal
expenses while traveling away from your tax home for business
purposes. You can deduct a higher percentage if the meals take place
during or incident to any period subject to the Department of
Transportation's "hours of service" limits. (These limits apply
to workers who are under certain federal regulations.) The percentage
is 60% for 2000 and 2001, and it gradually increases to 80% by 2008.
Business meals expenses are covered in chapter 1 of Publication 463.
Employer-Provided Educational Assistance
The tax-free status of up to $5,250 of employer-provided
educational assistance benefits each year was scheduled to end for
courses beginning after May 31, 2000. It has been extended to include
undergraduate-level courses beginning before January 1, 2002. For more
information, see Publication 970,
Tax Benefits for Higher
Education.
Reporting Capital Gain Distributions on Form 1040A
For 2000, you may be able to report your capital gain distributions
from mutual funds on Form 1040A, instead of on Form 1040. A worksheet
in the Form 1040A instructions is used to figure the tax. For details,
see chapter 4 of Publication 550,
Investment Income and
Expenses.
Like-Kind Exchanges Using Qualified Exchange Accommodation
Arrangements (QEAAs)
The like-kind exchange rules generally do not apply to an exchange
in which you acquire replacement property (new property) before
you transfer relinquished property (property you give up). However, if
you use a qualified exchange accommodation arrangement (QEAA), the
exchange may qualify as a like-kind exchange. For more information,
see chapter 1 in Publication 544,
Sales and Other Dispositions of
Assets.
Self-Employment Tax
The self-employment tax rate on net earnings remains the same for
calendar year 2001. This rate, 15.3%, is a total of 12.4% for social
security (old-age, survivors, and disability insurance) and 2.9% for
Medicare (hospital insurance).
Earnings limit.
The maximum amount subject to the social security part for tax
years beginning in 2000 has increased to $76,200. All net earnings of
at least $400 are subject to the Medicare part.
Revocation of exemption from self-employment tax.
If you are a minister, a member of a religious order not under a
vow of poverty, or a Christian Science practitioner, and are exempt
from self-employment tax because you have an approved Form 4361,
Application for Exemption From Self-Employment Tax for Use by
Ministers, Members of Religious Orders and Christian Science
Practitioners, you now have until April 15, 2002, to revoke that
exemption. This deadline is extended beyond April 15, 2002, if you get
an extension to file your 2001 return.
To revoke the exemption, you must file Form 2031,
Revocation of Exemption From Self-Employment Tax for Use by
Ministers, Members of Religious Orders, and Christian Science
Practitioners.
For more information on social security for members of the clergy,
see Publication 517,
Social Security and Other Information for
Members of the Clergy and Religious Workers.
Earned Income Credit
The following paragraphs explain the changes to the earned income
credit for 2000. For more information, see Publication 596,
Earned Income Credit.
Amount of earned income.
The amount you can earn and still get the credit has increased for
2000. The amount you earn must be less than:
- $27,413 with one qualifying child,
- $31,152 with more than one qualifying child, or
- $10,380 without a qualifying child.
Amount of investment income.
The maximum amount of investment income you can have and still get
the credit has increased for 2000. You can have investment income up
to $2,400. For most people, investment income is taxable interest and
dividends, tax-exempt interest, and capital gain net income.
New definition of eligible foster child.
For tax years after 1999, a child is your eligible foster child for
the earned income credit if all the following apply.
- The child is your brother, sister, stepbrother, or
stepsister (or a descendant of your brother, sister, stepbrother, or
stepsister) or has been placed with you by an authorized placement
agency.
- You cared for that child as you would your own child.
- The child lived with you for the whole year, except for
temporary absences.
Previously the child only had to meet (2) and (3) above to be an
eligible foster child.
Limit on Personal Credits
For 2000 and 2001, your nonrefundable personal credits for the year
can offset both your regular tax (after reduction by the foreign tax
credit) and your alternative minimum tax for that year. Previously,
those credits could offset only your regular tax, not your alternative
minimum tax.
The following are the nonrefundable personal credits. They are
called nonrefundable because if they are more than your regular tax
and alternative minimum tax you cannot get a refund of the difference.
- Adoption credit.
- Child tax credit. (See form instructions for an
exception.)
- Credit for child and dependent care expenses.
- Credit for the elderly or the disabled.
- Education credits (Hope and lifetime learning
credits).
- Mortgage interest credit.
- District of Columbia first-time homebuyer credit.
For more information about these credits, see the instructions for
Form 1040.
Tax From Recapture of Education Credits
You may owe this tax if you claimed an education credit (the Hope
credit or the lifetime learning credit) on your 1999 tax return and,
in 2000, you, your spouse if filing jointly, or your dependent
received either a refund of qualified tuition and related expenses or
tax-free educational assistance. For more information, see
Recapture of credit, in Publication 970,
Tax Benefits
for Higher Education.
Paid Preparer Authorization
Beginning with your return for 2000, you can check a box and
authorize the IRS to discuss your tax return with the paid preparer
who signed it. If you check the "Yes" box in the signature area
of your return, the IRS can call your paid preparer to answer any
questions that may arise during the processing of your return. Also,
you are authorizing your paid preparer to perform certain actions. See
your income tax package for details.
Electronic Payment Options
If you owe the IRS, you may now be able to make your payment
electronically by authorizing a direct debit to your checking or
savings account or by using your credit card.
Direct debit.
You can file and pay in a single step by authorizing a direct debit
(automatic withdrawal) payment from your checking or savings account.
This option is available through tax software packages, tax
professionals, and TeleFile. You should check with your financial
institution to be sure an automatic withdrawal is allowed and to get
the correct routing and account numbers.
Credit card.
You can also file and pay in a single step by authorizing a credit
card payment. This option is available through some tax software
packages and tax professionals. If you just want to make a payment
without filing at the same time, you can authorize a payment by
contacting one of the following authorized service providers.
- Official Payments Corporation can be reached by phone at
1-800-2PAY-TAX
(1-800-272-9829) (Customer Service at
1-877-754-4413) or on the Internet at
www.officialpayments.com
- PhoneCharge, Inc. can be reached by phone at
1-888-ALLTAXX (1-888-255-8299)
(Customer Service at 1-877-851-9964) or on the
Internet at www.About1888ALLTAXX.com
Each provider will charge a convenience fee based on the amount you
are paying. You can find out what the fee will be by calling the
provider's toll-free automated customer service number or visiting the
provider's web site.
New Method for Extensions of Time To File
Previously, to get an automatic 4-month extension to file your
return, you would do one of the following.
- File a paper Form 4868, Application for Automatic
Extension of Time To File U.S. Individual Income Tax
Return.
- Pay part or all of your estimate of tax due electronically
by using a credit card. (If you used this option, you did not have to
file Form 4868.)
Now, you can also get an automatic extension of time to file by
filing Form 4868 electronically by phone or over the Internet. If you
file Form 4868 electronically, you can make a tax payment by
authorizing a direct debit (automatic withdrawal) from your checking
or savings account. For more information, see the Form 4868
instructions.
1040PC Format No Longer Accepted
The 1040PC format was a computer-generated paper tax return. The
IRS will no longer accept tax returns in the 1040PC format. The IRS
encourages all former 1040PC filers to use IRS e-file.
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