January 31. This is the due date for all forms to be in the mail. You may not get some forms until the first week of February from those who are late in mailing them. The forms you will need to keep in a safe place until your appointment include:
W-2s. Be sure you have one for each job you worked at. If you worked at more than two jobs, check your records to be certain you remember all jobs worked.
Form 1099-INT & Form 1099-DIV. These forms are issued for each account that pays you interest or dividends. This includes banks, brokerage firms, and even tax-exempt interest (which must be listed even though not taxable).
Other 1099s. Real estate sales are listed on Form 1099-S. Stock sales are listed on Form 1099-B. Foreclosures are listed on Form 1099-A. Social Security is listed on Form 1099-SSA. Unemployment, state tax refunds, and gambling winnings also are reported on Forms 1099.
Form 1098. This form reports interest you paid on your mortgage. Commercial lenders must use this form. Private lenders do not. If you have a private lender, you will need your payment book or a statement from your lender.
Partnership Forms K-1. These forms usually arrive late in the tax season. We want to see you well before they arrive so that we can have everything else ready to go. All you need to do is drop off, fax, or mail the K-1 when it arrives.
Purchase or Refinance Paperwork. If you buy a home or refinance one, we need the settlement, or escrow, statement. If you aren't sure which one that is, bring the entire packet. If you sold property, we need the sale and original purchase information.
Stock Sales. If you sold stock during the year, we need the original cost! Please be sure you have the "buy" slip for each stock sold. If it is a mutual fund, we need the year end statement for each year of ownership (unless the company sends you a breakdown of the average cost per share).
Business Purchases. If you purchased new equipment for your job or business, bring the contracts or receipts. Same with a vehicle purchased for business, bring the contract.
Estimated Tax Payments. Look up the actual date paid and amount for each quarter. Remember that the January 2000 payment is for your 1999 income tax, and the January 1999 payment went on your 1998 return.
Mileage. You must have some kind of log. For 1999, there are two different rates for deducting business miles. Therefore, your mileage (total miles driven and business miles included in that total) must be recorded in two separate time periods: January 1-March 31 and April 1-December 31. If your car is on a lease, we need a full listing of all expenses, including gas, oil, insurance, lease payments, license, repairs, as well as a list of personal and business miles.
Sale of a House. For a principal residence, you may be able to exclude as much as $250,000 of gains ($500,000 for couples). There are two tests:
1. "Once-in-two-years." You must not have used this rule for at least two years prior to the current sale.
2. "Used-as-your-home." In the 5-year period before the current sale, you must have used the property as your home for a total of two years. If you can meet the tests, you can exclude the gain.
Other Rules. On joint returns, both spouses must qualify. What if only one spouse passes both tests because of divorce, separation, or remarriage? There's an exception a spouse who does qualify may use the $250,000 limit. When a couple separates, the spouse who leaves the home is still considered to be living there if there is a decree of divorce or separation allowing the other spouse to live in the property.
Examples. You own a rental home with a large potential gain. Move into it for two years and you can exclude gains up to the $250,000/500,000 limit. You want to buy a fixer-upper and turn it at a profit. You can do it every two years as long as you live in it while making the improvements.
Depreciation Recapture. If you take depreciation on your home after May 6, 1997 you will probably owe taxes later. The depreciation (up to the total gain) must be claimed. It is not a part of your capital gain. The maximum tax rate on this part of the gain is 25%. This will affect those who claim a home office, run a day care center, or rent out the house while not living there.
Tax Rates. Currently, we have five basic tax "rates." Many people refer to these as "brackets." These terms are used as advertising tools by many investment companies. The "rates" are applied to taxable income in sections. The first part of income is taxed at 15%. This applies to all taxpayers. The amount taxed at 15% depends on your filing status, such as married filing joint, or single. The next part is taxed at 28%. Then 31%, 36% and 39.6%. The majority of taxpayers in the United States are taxed at either 15% or 28%. Prior to the change, capital gains were taxed at a maximum rate of 28%.
Any sales fall into one of two categories-short-term and long-term.
New Rates. Each type has its own tax rate.
Short-term gains are taxed as ordinary income-up to 39.6%.
Long-term gains have two rates. For those in the 15% bracket, the gain is taxed at 10%. For all others, the gain is taxed at 20%.
Real Estate and Collectibles. There is a special rule for real estate: to the extent of your depreciation in the past, this amount of your gain is in a class by itself, and has a maximum 25% tax rate. With collectibles (for example, coins, bullion, works of art), if the asset is held more than 12 months, 28% is the best rate available.
After Year 2000. A 4th level of gains is added after the year 2000. Assets held more than five years will have a maximum rate of 8% for gains in the 15% rate, and 18% for gains normally taxed at 28% or more.
Planning Opportunity. The new long-term rates, and particularly the 5-year rate, may be an opportunity to shelter gains on funds used for college education. For example, if you put the money in a stock or mutual fund, and leave it alone while the child is in grade school or high school, you may then gift some or all of the money to the child prior to selling it or cashing it in. Assuming the child is in a 15% bracket, the gains may be taxed at a rate as low as 8%! (Be sure to check gift tax laws before proceeding with this plan.)
Phase Out. You will lose the credit if your income is too high. Beginning at $110,000 ($75,000 for single parents), you lose $50 of your credit for each $1,000 (or part of $1,000) of income above this amount.
Low-Income Parents. There is a complicated rule for low-income parents with three or more children. Please see your EA for further details.
Type of Education. The HOPE credit covers the first two years of a post-secondary program leading to a degree or certificate. A student may use HOPE in only two different tax years, and can't use LL in the same year. LL can be used for any post-secondary classes (even to acquire or improve job skills). It may be used as often as you qualify. Whenever possible, use the two-year HOPE credit first, then switch to the LL credit.
Eligible Expenses. Tuition and fees only. Books, supplies, travel, room & board, and other expenses do not qualify.
Who is Eligible? You, your spouse, or any child claimed as your dependent. If the child is your dependent, the money is considered to be paid by you even if it is paid by the child.
Phase Out. The credits phase out as your AGI ranges from $80,000 to $100,000 ($40,000 to $50,000 for single filers).
Qualifying Education. Under HOPE, a student must be enrolled at least half-time. The LL credit has no halftime rule-even a single class qualifies!
Home Offices Reinstated. Beginning in 1999, your home may be deductible if you use it to conduct "administrative or management activities" and there is no other fixed location where you do substantial amounts of this work. This will apply to contractors, sales representatives, and many of the other taxpayers who lost their office in home deduction after the Soliman case.
Student Loan Interest. You may deduct up to $1,500 of interest on a student loan-even if you do not itemize. This deduction phases out beginning at $40,000 for singles and $60,000 for couples.
Estimated Tax. There is a penalty for underpayment of estimated tax if the balance due (after subtracting withholding) on the tax return is over $1,000.
Employer-Paid Education. The provision to allow employers to pay up to $5,250 of educational expenses is extended until 6/1/2000.
Estate Tax. If death occurs in 1999, estates and lifetime gifts totaling less than $650,000 are not subject to tax. This figure rises to $675,000 in 2000 and will increase to $1 million by the year 2006. Other changes help family-owned businesses and farms.
IRA contributions are the lesser of compensation or $2,000. This limitation applies to all IRA contributions (except the $500 educational IRA) including the Roth IRA. Compensation includes wages, self-employment income, nonpassive partnership income and alimony. Form 5498 is an information form showing the value of your account at the end of the tax year along with the amount of contributions for the year. It is not attached to your income tax return. If you are making a contribution between January 1 and April 15, be sure to indicate which tax year the contribution should be credited to. Fees to set up or manage your IRA are deducted as miscellaneous deductions, subject to a 2% income adjustment IF you pay the fee separately. Fees taken from your account are not deductible. If your spouse does not work, or makes less than $2,000 for the year, a spousal IRA can be set up. There are some limitations on deductibility. A contribution that is more than the amount permitted is an excess contribution. If that excess amount remains in your IRA, a 6% excise tax is assessed. Also, if you make a contribution in the year you turn 70½, that contribution is considered to be an excess contribution. (Exception: You may make a contribution to a Roth IRA after 70½ as long as you have earned income.) However, if you withdraw your excess contributions, plus the interest earned on that amount prior to filing your tax return, there is no excise tax. You cannot borrow money from an IRA or use it as security for a loan. If you an active participant in an employer-sponsored pension plan, you may still make an IRA contribution, but the deductibility may be limited. Roth IRAs must be kept separate from regular IRAs. The above list is meant to serve as a guide for you regarding your IRA. Be sure to call the office to discuss your particular situation regarding your retirement accounts.
You can take your required payments monthly, quarterly or annually, just as long as your total distributions equal the required distribution. The minimum distribution is determined for each IRA you own however you can withdraw the total minimum amount from any one of your accounts. There is no penalty if you withdraw more than the minimum amount but the excess cannot be applied to the next year required distribution. Which method is best for you depends on several factors, including who your beneficiaries are and whether or not you want to minimize your withdrawal. The best way to plan for those required distributions is to make an appointment to review your particular situation. You'll need to bring information about the account values for all IRAs as well as the birthdays for the beneficiaries.