Business credit carryovers
Business credits created in 1998 and subsequent years can be carried back 1 year and forward 20 years.

Child tax credit
This nonrefundable tax credit begins in 1998 at $400 per qualifying child, and will increase to $500 for 1999 and subsequent years. There are special provisions for taxpayers with 3 or more qualifying children.

Dependent's standard deduction
Beginning with 1998 returns, this deduction is changed to the greater of $500 or the dependent's earned income plus $250.

 

Earned income credit
Beginning with 1997 returns, taxpayers will not be eligible for the earned income credit (EIC) if they have previously claimed EIC fraudulently or recklessly. A fraudulent claim results in a 10-year denial, reckless or intentional disregard results in a 2-year denial. A tax preparer will be penalized $100 if he/she is determined to have failed to be diligent in determining eligibility of the taxpayer for EIC.

Education IRAs
Taxpayers can contribute up to $500 per year into a special IRA to pay the educational expenses of a designated beneficiary who is under the age of 18. Distributions are excluded from income if the qualifying education expenses exceed the total amount of the distribution. If the distribution exceeds qualifying expenses, a portion of the distribution will be included in income.

Electronic Federal Tax Deposit System
The IRS has pushed back the start date for employers to comply with the new electronic filing requirements for payroll deposits to July 1, 1998. The 10% penalty for not filing electronically will be waived until then. Initially, employers that had more than $50,000 of federal employment tax deposits in 1995 were required to enroll in the Electronic Federal Tax Deposit System (EFTPS) and to deposit electronically by July 1, 1997. The $20,000 threshold for businesses required to make deposits in 1999 has also been eliminated.

Estate and gift tax credit
The $600,000 exemption will increase over the next few years. The 1998 level is $625,000. A special estate exemption of $1,300,000 is available for qualified family-owned businesses for individuals dying after December 31, 1997.

Estate distributions
Effective for tax years beginning after August 5, 1997, estate distributions made within the first 65 days of the following taxable year can be treated as if they were made during the current taxable year.

Estimated tax payments
The requirement for estimated payments has been increased to $1,000 for the 1998 and subsequent tax years.

Foreign earned income exclusion
The 1998 level is $72,000 and will be increased in subsequent years.

Gain on sale of principal residence
For the sale of a principal residence after May 6, 1997, up to $250,000 of the gain can be excluded if the taxpayer has owned and used the property for 2 years of the 5-year period ending on the date of the sale. Up to $500,000 of the gain can be excluded if the taxpayer is married and filing a joint return, and the taxpayer and the taxpayer's spouse both meet the use test.

Health insurance deduction for self-employed individuals
The rate will increase until it reaches 100% in 2007.

Hope and Lifetime Learning Credit
Beginning in 1998, the Hope Scholarship Credit is 100% of the first $1,000 of expenses and 50% of the excess expenses up to an additional $1,000. The Lifetime Learning Credit begins after June 30, 1998 and is 20% of qualified expenses not exceeding $5,000.

Interest on education loans
Beginning in 1998, interest paid on education loans will be deductible, subject to limitations ($1,000 in 1998).

IRA phase out ranges
For 1998 returns, the phase-out of deductions for IRA contributions begins at $30,000 ($50,000-MFJ, $0-MFS). This will increase over the next eight to ten years.

Meal expense deductions
Taxpayers subject to federal hours of service will be able to deduct a larger percentage of their business meals beginning in 1998. The rate for 1998 is 55%, and will be increased in subsequent years.

Net operating loss carryovers
Net operating losses incurred in tax years beginning after August 5, 1997 can be carried back 2 years and forward 20. Certain net operating losses can be carried back 3 years and forward 20 years.

Office in home expenses
Beginning in 1999, office in home expenses will be allowed for the place of business which is used by the taxpayer for administration or management activities, if certain conditions are met.

Roth-IRAs
A new Roth-IRA begins in 1998. Contributions will not be deductible, and qualifying distributions will not be taxable. Contributions must remain in the fund for at least 5 years. Regular IRAs can be rolled into Roth-IRAs if the taxpayer's modified AGI is less than $100,000 and the taxpayer is not filing MFS.

Standard mileage rate
The standard mileage rate for 1998 has increased to 32.5 cents per business mile. This rate is permitted for purchased automobiles as well as leased automobiles. The rate for medical expenses is 10 cents per mile, and for charitable purposes the rate has been increased to 14 cents.

Withdrawals from retirement plans for first-time homebuyers
First-time homebuyers can make withdrawals from their retirement plans without paying the 10% penalty for early withdrawals if the withdrawals are used to acquire, construct, or reconstruct a principal residence of the taxpayer, taxpayer's spouse, or any child, grandchild, or ancestor of the taxpayer or taxpayer's spouse.