2000 Changes

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.

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.

1. 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.
2. You cared for that child as you would your own child.
3. 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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