New rules in the land of taxes be careful with capital gains

Staying Ahead

March 02, 1998|By Jane Bryant Quinn | Jane Bryant Quinn,Washington Post Writers Group

YOU DON'T have to turn to an income-tax preparer this year to tussle with the details of last summer's tax cuts. There are plenty of new rules, but most of them won't affect your 1997 returns.

There's one big exception: figuring the tax on capital gains, which is going to be, um, painstaking.

Otherwise, this year's tax return remains pretty cut and dried. Most taxpayers can probably use last year's return as a guide, says IRS Commissioner Charles Rossotti.

Here's what's new:

The standard deduction. It rises to $6,900 for married couples filing jointly, $6,050 for heads of household and $4,150 for singles. Itemize your deductions only if they exceed these amounts.

Generally speaking, you're a head of household if you pay more than half the household costs of a relative who lives with you, or a parent wherever he or she lives.

Personal exemptions. You can write off $2,650 this year, for yourself and each dependent. This tax break phases out for couples with adjusted gross incomes higher than $181,800, heads of household over $151,500 and singles over $121,200.

Spousal Individual Retirement Accounts. These are for spouses who have little or no income of their own. If your mate qualifies for a tax-deductible IRA, he or she can put up to $2,000 in a separate IRA for you. You can also use a nondeductible IRA.

The big beneficiaries: homemakers, most of them female. Also retirees whose spouses still work.

Which workers qualify for a full 1997 IRA? (1) Employees with no company pension plan (and whose spouse doesn't have a plan). Employees who have a plan and earn no more than $25,000 if single and $40,000 if married and filing jointly. Above those ceilings, the IRA deduction phases out.

Don't confuse these traditional, tax-deductible IRAs with the new Roth IRAs that started this year and are open to almost everyone. For 1997, you're entitled only to the old-fashioned kind.

IRA withdrawals. Money withdrawn from a traditional IRA is always taxable. But you don't owe the 10 percent penalty for taking money when you're under 59 1/2 if: (1) you're paying uninsured medical costs that exceed 7.5 percent of your adjusted gross income; or (2) you're paying health insurance premiums, and received unemployment pay for 12 consecutive weeks.

Health insurance premiums. If you're self-employed, you can deduct up to 40 percent of your policy's cost, compared with 30 percent last year.

If your policy is a Medical Savings Account (MSA), you can also deduct your savings contribution (the amount varies by plan; get it from your insurer).

Adoption expenses. If you adopted a child under 18 last year, you might qualify for a tax credit of up to $5,000 ($6,000 if the child has special needs). The full credit goes to families with adjusted gross incomes up to $75,000. Then it starts to phase out, and vanishes at $115,000.

Long-term care insurance. You can write off part of the cost of your premium, if you itemize deductions and if your uninsured medical expenses exceed 7.5 percent of your adjusted gross income.

This tax break applies to most policies bought before Jan. 1, 1997, and "tax qualified" policies bought since. Ask your insurance agent if you're tax-qualified.

Long-term care expenses for you or your spouse. You can deduct, as a medical expense, any nursing-home and home-care expenses that aren't reimbursed by insurance. To qualify, you have to be chronically ill and under a formal treatment plan.

Pub Date: 3/02/98

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.