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Put Your Social Security Number on Form 1040!
To protect your privacy, your social security number (SSN)
is not printed on the peel-off label
that came in the mail with your tax booklet. This means that you
must now enter your SSN in the space provided on page 1 of Form
1040. If you are married filing a joint return, also enter your spouse's
SSN. Be sure to list the SSNs in the same order as the first names.
Exemption Amounts Reduced For High
Incomes
You are allowed a $2,700 deduction for each exemption to
which you are entitled up from $2,650 last year. However, your exemption
amount could be phased out, and you could lose all or part of the benefit
of your exemptions if your adjusted gross income is above a certain amount.
The amount at which this phaseout begins depends on your filing status.
For 1998, the phaseout begins at $93,400 for married persons filing separately;
$124,500 for unmarried individuals; $155,650 for heads of household; and
at $186,800 for married persons filing jointly.
If you meet the above criteria, you must use the worksheet on page 30 of
the Form 1040 Instructions Booklet
to compute your exemptions for line 38 on Form 1040.
New Child Tax Credits
Do you have a child who was under age 17 at the end of 1998?
If so, you may be able to claim either or both of these new credits:
- The Child Tax Credit
- The Additional Child Tax Credit
The total of these credits cannot be more than $400 for each qualifying
child. Figure the child tax credit first. If you have three or more qualifying
children and you are not able to claim the full $400 child tax credit for
each child, you may be able to claim the additional credit.
The additional child tax credit
is refundable; that is, it may give you a refund even if you do not owe
any tax.
These credits are in addition to the child
and dependent care credit and the earned
income credit that you may be able to claim.
Who Is a Qualifying Child? The
child must be your dependent and must meet certain other requirements.
See Qualifying Child for Child Tax Credit in the instructions for line
6c, column (4), on page 19 of the Form
1040 Instructions Booklet.
Caution: If the child meets those requirements, check the box in
column (4) on line 6c of your return.
Where Do You Claim These Credits?
Child Tax Credit: If you have
at least one qualifying child, follow the instructions on page 31 of the
Form 1040 Instructions Booklet
and figure the credit on the Child Tax Credit Worksheet on page 32. Do
not attach this worksheet to your return. Enter the credit on Form
1040, line 43.
Additional Child Tax Credit: Use
Form 8812, Additional Child Tax Credit,
to figure this credit and attach it to your return. Enter the additional
child tax credit on Form 1040,
line 60.
Student Loan Interest Deduction
If you paid interest on a qualified student loan, you may
be able to deduct up to $1,000 of the interest on line 24 of Form
1040. See the instructions for line 24 on page 27 of the Form
1040 Instructions Booklet for details.
Educational Credits & Benefits
There are new tax benefits for higher education, the Hope
Credit (also called the Hope Scholarship Credit), and the Lifetime Learning
Credit.You may be able to take these credits for tuition and related expenses
paid for yourself, your spouse, or dependents to enroll oat or attend an
eligible eductional institution. You cannot claim more than one benefit
for the same expense. These credits are reported on line 44 of Form
1040. Use Form 8863, Education
Credits (Hope and Lifetime Learning Credit), to figure either of the
credits. (Instructions are on pages 2 & 3 of the form.) Highlights
of the new benefits are:
Hope credit: You may be able
to claim a tax credit of up to $1,500 for each eligible student. The Hope
credit is allowed for the first 2 years of postsecondary education and
is based on the qualified tuition and related expenses paid during the
tax year. See page 4 of Pub. 970,
Tax Benefits for Higher Education.
Lifetime learning credit: For
expenses paid after June 30, 1998, you may be able to claim a tax credit
of up to $1,000 per family for the total qualified tuition and related
expenses paid during the tax year. There is no maximum period for which
the lifetime learning credit can be claimed. See page 4 of Pub.
970, Tax Benefits for Higher Education.
Education IRAs: You may be able
to make nondeductible contributions of up to $500 to an education IRA for
a child under 18. Earnings in the IRA accumulate tax free. See page 7 of
Pub. 970, Tax Benefits for Higher
Education.
Interest on student loans: You
may be able to claim a deduction of up to $1,000 ($1,500 for 1999) for
interest paid on a qualified student loan. You claim the deduction on line
24 of Form 1040 or line 16 of
Form 1040A. See page 27 of the
Form 1040 Instructions Booklet,
or page 28 of the Form 1040A Instructions
Booklet. Also, see page 11 of Pub.
970, Tax Benefits for Higher Education
Sale of Your Home
Form 2119 is now obsolete: If
you sold your main home in 1998, report the sale only if you have a gain
that is not excluded from your income. You may be able to exclude your
gain up to a limit of $250,000 ($500,000 on a joint return in most cases).
If you cannot exclude all of the gain, report the sale on Schedule
D (Form 1040), Capital Gains and Losses. See IRS
Publication 523, Selling Your Home, for information on how to compute
your gain.
If you sold your main home in 1998 and all four of the following
apply, you do not have to report the sale on your tax return.
1. No part of the home was used for business or rental purposes.
2. You (or your spouse if filing a joint return) owned and lived
in the home as your main home for at least 2 years within the 5-year period
ending on the date of sale.
3. You (and your spouse if filing a joint return) have not sold or
exchanged another main home after May 6, 1997.
4. The selling price of the home is not over $250,000 ($500,000 if
married filing a joint return and both you and your spouse lived in the
home for periods adding up to at least 2 years within the 5-year period
ending on the date of sale).
If all four of the conditions do not apply, see Pub.
523 to find out if you have to report the sale on your return and,
if you do, how to do so.
Self-Employed Health Insurance Deduction
If you were self-employed and had a net profit for the year,
you may be able to deduct up to 45% of the amount you paid for health insurance
on behalf of yourself, your spouse, and your dependents. This deduction
is taken as an adjustment to income on Form
1040, line 28. For more information see either Publication
535, or page 28 of the Instructions
for Form 1040, line 28, for details. (The amount deducted will rise
to 60% in 1999.)
Earned Income Credit (EIC)
The maximum amount of income you can earn and still get the
earned income credit has increased. You may be able to take the credit
if you earned less than $30,095 ($10,030 if you do not have any qualifying
children). The maximum amount of investment income you can have and still
be eligible for the credit has increased to $2,300. Click here for more
information. Also, see page 36 of the Form
1040 Instructions Booklet for information about the Earned Income Credit
entered on lines 59a and 59b of Form
1040.
IRA Deduction Restored for Some
People Covered by Retirement Plans
The following paragraphs highlight
the new tax benefits that relate to IRAs. For complete information on IRAs,
see Pub. 590, Individual Retirement
Arrangements (including both Roth IRAs and Education IRAs).
Traditional IRA income limits.
If you are covered under an employer retirement plan, the amount of income
you can have and not be affected by the deduction phaseout has increased
for most taxpayers. The amounts vary depending on filing status.
Spouse covered by plan. Even
if your spouse is covered by an employer-sponsored retirement plan, you
may be able to deduct contributions to your traditional IRA if you are
not covered by an employer plan.
Basically: You may be able to take
an IRA deduction if you were covered by a retirement plan and your modified
AGI (adjusted gross income) is less than:
- $40,000 if single, head of household, or married filing separately
and you lived apart from your spouse for all of 1998;
- $60,000 if married filing jointly or qualifying widow(er).
If you are married filing jointly and you were not covered by a plan
but your spouse was, you may be able to take a deduction if the modified
AGI on the joint return is less than $160,000. See the instructions for
line 23 that begin on page 25 of the Form
1040 Instructions Booklet.
Roth Conversion IRAs
If you converted part or all of a traditional, SEP, or SIMPLE
IRA to a Roth IRA in 1998, you may have to file Form
8606. See the Instructions on the reverse side of Form 8606 and the
separate Instruction Booklet for
Form 8606 for more details.
Penalty-Free IRA Distributions
The additional tax on an early distribution from an IRA may
not apply if you paid higher education expenses for yourself, your spouse,
or your children or grandchildren. The tax also may not apply if you paid
expenses related to the purchase of a home by a first-time homebuyer. See
Form 5329 and the Instruction
Booklet for Form 5329 for more details.
New Recovery Method for Joint and Survivor
Annuity Payments from Qualified Plans
For annuity starting dates beginning in 1998, there is a
new method for figuring the tax-free portion of an annuity payment that
is payable over the lives of more than one annuitant. Under this method,
the number of anticipated monthly payments used to recover the tax-free
investment in the contract is determined by combining the ages of the annuitants.
For more information, see:
Elimination of 18-Month Holding
Period for Lowest Capital Gains Rates
Beginning in 1998, you no longer have to hold property for
more than 18 months to be eligible for the lowest capital gains rates.
Now, in most cases, you only have to hold property more than one year to
be eligible for the 10% or 20% tax rate. For more information, see:
Sale of Qualified Small Business
Stock
You may have to pay tax on only one-half of your gain from
the sale or exchange of qualified small business stock. The stock must
have been originally issued after August 10, 1993, and held by you for
more than 5 years. See chapter 4 of Publication
550, Investment Income and Expenses, for more information.
If you receive a capital gain distribution, you now report
it directly on line 13 of Schedule
D (Form 1040). You no longer report it on Schedule B (Form 1040). See
page 21 if the Form 1040 Instructions
Booklet.
Increased Standard Deduction for
Employed Dependents
The minimum standard deduction for dependents has increased
from $650 for 1997 to $700 for 1998. Also, the standard deduction for many
dependents with earned income has increased, up to $250.
The standard deduction for an individual for whom an exemption can be claimed
on another person's tax return is generally limited to the greater of (a)
$700, or (b) the individual's earned income for the year plus $250 (but
not more than the regular standard deduction amount, generally $4,250).
If someone else can claim you as a dependent on their tax return, you
must use the Standard Deduction Worksheet for Dependents on page 29 of
the Form 1040 Instructions Booklet.
Increased Standard Mileage Rate
for Charitable Purposes
The standard mileage rate you can deduct for the use of your
car in giving services to a charitable organization has increased from
12 cents per mile to 14 cents per mile. See Page A-4 of the Schedule
A Instructions Booklet for more information.
Employee Business Expenses
Certain employee business expense deductions have been increased
or modified.
The standard mileage rate for the cost of operating your car increased
to 32 1/2 cents a mile for all business miles. You can now use the standard
mileage rate for a car you lease, as well as a car you own.
If you are a rural mail carrier who received qualified reimbursements
for business car expenses, you may be able to treat the amount of such
reimbursement as your allowable car expense. The higher standard mileage
rate that previously applied to rural mail carriers is repealed.
If you are subject to the Department of Transportation's hours of
service limits, you may be able to deduct 55% of your qualified meal and
beverage expenses while traveling away from your tax home.
Certain federal employees who are participating in federal crime
investigations or prosecutions are not subject to the 1-year rule for deducting
temporary travel expenses.
For more information on employee business expenses, see:
Credit for the Elderly or Disabled
If you are under age 65 and retired on permanent and total
disability, you may be able to claim the credit for the elderly or disabled.
You are no longer required to attach to your return a physician's statement
(certifying that you are permanently or totally disabled), but your physician
must complete the statement for you to keep with your records. For more
information, see Pub. 524, Credit
for the Elderly or the Disabled .
Estimated Tax Penalty Rules Eased
You will not be liable for the penalty for failure to pay
estimated income tax if the total tax shown on your return minus the amount
you paid through withholding (including excess social security and railroad
retirement tax withholding) is less than $1,000 (i.e., the amount you owe
shown on line 68 of Form 1040.)
This is up from $500. See the instructions for line 69 on page 45 of the
Form 1040 Instructions Booklet.
Limit on Itemized Deductions
Some of your itemized deductions may be limited if your adjusted
gross income is more than a certain dollar amount. For 1998, the amount
is $124,500 ($62,250 if you are married filing separately). For more information,
see page A-6 of the Schedule A
Instructions Booklet. You will need to use the worksheet on that page
to compute your total itemized deductions on Schedule A.
Social Security and Medicare Taxes
The maximum wages subject to social security tax (6.2%) has
increased to $68,400. All wages are subject to Medicare tax (1.45%).
Joint Return Responsibility
Generally, both spouses are responsible for the tax and any interest
or penalties on a joint tax return. In some cases, one spouse may be relieved
of that responsibility for items of the other spouse that were incorrectly
reported on the joint return. For more details, see Pub.
501, Exemptions, Standard Deduction, and Filing Information .
Credit for Federal Tax Paid on Kerosene
If you use kerosene for household use (such as for heating,
lighting, or cooking), you may be able to claim a credit of 24.4 cents
for each gallon. And you can get a refund even if you do not owe tax. This
credit applies to undyed kerosene purchased (other than from a blocked
pump) after June 30, 1998. You must complete Form
4136, Credit for Federal Tax Paid on Fuels, and attach it to Form
1040. You can get a refund even if you do not owe tax. See Form 4136
for details. (The instructions for form 4136 are attached as pages 3 &
4 to the form.)
Payment of a Balance Due on Your Tax
Return
If you owe additional taxes, make your check or money order
payable to the "United States Treasury," instead of the "Internal
Revenue Service." See the instructions for line 68 on page 44 of the
Form 1040 Instructions Booklet
for more details.
Daytime Phone Number on Form 1040
IRS has added a space on page 2 of Form
1040 for your daytime phone number. Providing your phone number may
help speed the processing of your return if they have a question that can
be answered over the phone. However, you do not have to enter your number.
If you are filing a joint return, you may enter either your or your spouse's
daytime phone number.
Foreign Tax Credit
You generally can choose to claim income taxes you paid or
accrued during the year to a foreign country or U.S. possession as a credit
against your U.S. income tax. Or, you can deduct them as an itemized deduction.
Your foreign tax credit is subject to a limit based on your taxable income
from foreign sources. You generally figure your limit and the credit on
Form 1116. However, beginning
in 1998, you will not be subject to this limit and may be able to claim
the credit without using Form 1116. The foreign tax credit is claimed on
Form 1040, line 46. For more
information, see Pub. 514, Foreign
Tax Credit for Individuals.
Foreign Earned Income Exclusion
The amount of foreign earned income that you can exclude
increases to $72,000. See Publication
54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
General Information | 1998 Tax Year Archives | Tax Help Archives | Home
