What's New This Year

The year 2000 was another calm one, at least in terms of tax changes.

Congress spent a lot of time debating possible changes, as usual, including further attempts to repeal the marriage penalty and estate taxes. The President did an encore with his vetoes, a reprise of 1999.

As in previous years, there were also a number of inflation-related adjustments to the tax brackets and the various phase-out and deduction amounts, plus some previously scheduled increases in things like the equipment expensing amount.

Here are some highlights of changes in effect for 2000:

Equipment expensing election. The amount of equipment that can be written off in the same year it was purchased has risen to $20,000 for 2000 (up from $19,000) for small businesses and the self-employed.

Interest on student loans. You may be able to deduct up to $2,000 of interest on a qualified student loan paid within the first five years of the loan; this represents a $500 increase over last year.

Estimated tax payment changes. For 2000, if your adjusted gross income (AGI) is higher than $150,000 (or $75,000 for a married person filing separately), you can avoid interest and penalties by paying 108.6 percent of last year's tax in advance through payroll withholding or estimated tax payments. Previously the safe-harbor amount was 105 percent.

Personal exemption amount. This amount has increased to $2,800 per person for 2000.

Standard deductions. Standard deduction amounts have increased for 2000, to: singles, $4,400; heads of household, $6,450; married filing jointly, $7,350; and married filing separately, $3,675. If you claim an exemption for a dependent who has taxable income, his or her standard deduction will still be the greater of $700, or $250 plus his or her earned income.

Social Security wage base. The maximum amount of wages and net self-employment earnings that are subject to the Social Security portion of the payroll tax has risen to $76,200.

401(k) deferral limits. In 2000, an employee's permitted salary deferral to a 401(k) plan will be $10,500 (up $500 from 1999).

Standard mileage rates. For business use of a car, the standard mileage rate is once again 32.5 cents per mile for 2000. It was 32.5 cents per mile for the first quarter of 1999, and then dropped to 31 cents per mile for the remainder of that year.

Work opportunity credit. Businesses who hired workers in certain disadvantaged groups can get a credit of up to 40 percent of their first-year wages for employment of 400 or more hours, and up to 25 percent for employment of more than 120 but less than 400 hours. This credit had expired on June 30, 1999 but has been extended through December 31, 2001.

Roth IRA conversions. Taxpayers with AGI under $100,000 can convert an ordinary IRA to a Roth IRA if they pay income tax on the entire amount at the time of the conversion. Some fairly stringent rules are in play for 2000. For 1998 only, such taxpayers were allowed to convert to a Roth and pay the tax over the next four years. This grace period has expired, and for 1999 and later years, any conversion tax is due with your tax return for the year of the conversion.

Estate tax. The first $675,000 of assets in an estate will be exempt from federal estate tax in 2000, up from $650,000 in 1999.

Luxury cars. The luxury excise tax on high priced cars goes down to 5 percent from 6 last year, and that 5 percent will only be charged on the amount of purchase price exceeding $38,000, up from the previous $36,000.

Nanny tax. You can pay household help up to $1,200 in 2000 without having to pay Social Security or Medicare for that person. That's up from $1,100 in 1999.

Expatriate exemption. If you're working abroad, the first $76,000 of your earnings are exempt from U.S. income taxes, up $2,000 from 1999.

And Here Are A Few Tips To Get You Thinking Creatively About Ways To Manage Your Taxes:

1. Can You Take Advantage Of The Head Of Household Advantage?
   If you meet these requirements, you are eligible for the beneficial HOH rate:
   • You maintain a household for a qualifying person (a dependent child or other relative)
   • You and your qualifying person live in the same household for more than half the year (the parent doesn't have to live with you to be your qualifying person)
   • You are unmarried on the last day of the year
   • You pay more than half the cost of keeping up the home
   
   
2. Oft-Forgotten Deductions
   When you itemize deductions, be sure to remember to deduct tax preparation costs including any professional fees and/or software. IRA fees and bank vault box charges are also deductible.
   
   
3. A Mortgage by Any Other Name
   If your home is the collateral, your mortgage interest is deductible regardless of whether it's a first or second mortgage, a home equity loan or line of credit.