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 he information that follows is
designed to help you think about tax and financial planning for this year and next year,
and for the longer term. Among
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We've posted our updated tax planning guide. Click here for planning tips and strategies for 2000 and beyond.
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these items, you will find tax-saving moves for yourself and your family for now and
for the future.
In this section, we explain:
1998 RULES TO KNOW
ABOUT
- Capital Gains Holding Period Is Shortened; Reporting Is Simplified. For
sales after December 31, 1997, the holding period for preferential treatment of capital
gains has been reduced from more-than-18-months to more-than-12-months. Thus, individuals
who realize capital gains on the sale of an asset during calendar year 1998 will be
eligible for the 20 percent capital gains tax rate, if they have held the asset for more
than one year. (The applicable rate is 10 percent for taxpayers in certain low tax
brackets.)
This provides an immediate tax benefit for many taxpayers, and it eliminates thorny
problems related to the more-than-18-month holding period that had been created by the
1997 legislation. The change should dramatically simplify the 1998 tax filing season by
making Schedule D (which is used to report capital gains) much easier for taxpayers to
complete.
- Self-Employed Health Insurance Deduction Is Up. For 1998, a
self-employed person can deduct 45 percent of the amount he or she paid for health
insurance premiums. The deductible percentage grows in later years, as shown in Table 1-1.
TABLE 1-1
Health Insurance Premiums |
| For taxable years
beginning in |
Deductible
Percentage |
| 1999 |
45% |
| 2000 - 2001 |
50% |
| 2002 |
60% |
| 2003 - 2005 |
80% |
| 2006 |
90% |
| 2007 and thereafter |
100% |
- You Can Underpay Your Estimated Tax by $1,000 Without Owing More to Uncle Sam.
For 1998 and later years, an individual may underpay estimated tax by $1,000 and still
avoid an addition to tax (an "underpayment penalty"). That is, the
taxpayer’s balance due (total tax liability for the year, less tax withheld and
estimated payments) will have to be $1,000 or less in order to avoid a penalty. The
pre-1998 threshold was $500. A taxpayer whose balance due is more than $1,000 will be
subject to penalty unless protected by one of the safe harbor rules discussed in Chapter 2.
- Rate You Can Claim for "Charitable" Mileage Goes Up.
Beginning in 1998, the standard mileage rate for purposes of computing the charitable
contribution deduction is 14 cents per mile. It had been 12 cents per mile.
- Taxpayer-Friendly Rule on Contributions of Appreciated Stock Has Expired.
For a number of years, taxpayers could deduct an amount equal to the fair market value of
"qualified appreciated stock" contributed to a private foundation. This
provision was scheduled to expire, and it has. Contributions made after June 30, 1998, do
not qualify for the deduction.
- Clarification on Excluding Gain on the Sale of a Personal Residence Owned Less
Than Two Years. To be eligible for the exclusion, the taxpayer must have owned
the residence and used it as a principal residence for at least two of the five years
prior to the post-May 6, 1997, sale (or exchange). The 1998 legislation clarifies that an
otherwise qualifying taxpayer who fails to satisfy the two-year ownership and use rules is
able to exclude a proportionate share of the $250,000 exclusion ($500,000 if a joint
filer), not a proportionate share of the realized gain.
For example, consider an unmarried taxpayer who owns and uses a principal residence for
one year, and then sells it at a realized gain of $100,000. This taxpayer can exclude the
entire $100,000 gain because it is less than one-half of $250,000. The exclusion is not
limited to $50,000 (one-half of the $100,000 realized gain).
This provision is effective as if it had been included in the 1997 legislation. Thus,
anyone who sold a residence after the 1997 rule took effect and paid tax using the more
restrictive, and incorrect, exclusion ratio will want to consider filing for a refund.
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Tax Guide
