Note: Only the more significant changes are included. For more information on these changes, contact us.
If you use your car in your business, you can figure your deduction for business use based on either your actual costs or the optional standard mileage rate. The standard mileage rate for the cost of operating your passenger car, including a van, pickup, or panel truck, in 1999 is 32 1/2 cents a mile for all business miles driven before April 1. The rate is 31 cents a mile for business miles driven after March 31. For information on deducting a car used in a business see: Deducting a Company Car.
New rules make it easier to claim a deduction for the business use of your home. Under the new rules, you may qualify to claim the deduction, even if you never qualified before. These rule changes do NOT apply to employed individuals using a portion of their home for work - only to a business run from the home.
Beginning in 1999, it is easier for your home office to qualify as your principal place of business. Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements.
There are additional test and complications involved. Each individual case must be carefully examined to determine if it qualifies.
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 1999 cannot exceed $3,060. Your depreciation cannot exceed $5,000 for the second year, $2,950 for the third year, and $1,775 for each later year.
Increases to section 179 deduction. The total cost of section 179 property that you can elect to deduct is increased from $18,500 for 1998 to $19,000 for 1999.
Election under GDS to use 150% Declining Balance Rate. For 3-, 5-, 7-, and 10-year class property you placed in service before 1999 and chose to depreciate using the 150% declining balance (DB) rate, you had to use an ADS (Alternative Depreciation System) recovery period. If you place similar property in service after 1998 and choose to depreciate it using the 150% DB rate, you can use the same (GDS-General Depreciation System) recovery period you would use if you chose the 200% DB rate.
For 1999, this deduction increases to 60% of the amount you paid for medical insurance for yourself and your family. After 2001, the deduction will increase again
Self-employment Tax
The self-employment tax rate on net earnings remains the same for calendar year 1999. 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).
The maximum amount subject to the social security part for tax years beginning in 1999 has increased to $72,600. All net earnings of at least $400 are subject to the Medicare part.
The following items explain changes to several components of the general business credit
Research credit. The research credit was scheduled to expire for expenses paid or incurred after June 30, 1999. It has been extended for 5 years to include expenses paid or incurred through June 30, 2004. It has also been expanded to cover expenses paid or incurred after June 30, 1999, for research conducted in Puerto Rico and U.S. possessions.
Work opportunity credit. The work opportunity credit was scheduled to expire for wages paid to qualified individuals who began work for you after June 30, 1999. It has been extended to include wages paid to qualified individuals who begin work for you before January 1, 2002.
Welfare-to-work credit. The welfare-to-work credit was scheduled to expire for wages paid to qualified individuals who began work for you after June 30, 1999. It has been extended to include wages paid to qualified individuals who begin work for you before January 1, 2002.
For property placed in service after 1998, use the same recovery period you use to figure your depreciation for regular tax purposes to figure any AMT adjustment.
The definition of noncapital assets (assets that generally produce ordinary, rather than capital, gain or loss when sold) has been expanded to include the following categories of assets.
Supplies of a type you regularly use or consume in the ordinary course of your trade or business, that you held or acquired after December 16, 1999.
The following 1999 tax changes affect taxpayers who use the installment method of accounting.
If you normally report income using an accrual method of accounting, you cannot use the installment method of accounting to report gain on sales or other dispositions of property occurring after December 16, 1999. However, this rule does not apply to sales or other dispositions of the following property.
Cash basis taxpayers can still use the installment method of accounting to report gain on the sale or other disposition of property.
If you pledge an installment obligation as security for a loan, you must treat the proceeds of the loan as payment on the installment obligation and recognize the gain. This is called the pledge rule.
For sales or other dispositions occurring after December 16, 1999, if you have the right to transfer an installment obligation in payment of a loan, the loan is considered directly secured by the obligation and the pledge rule applies. .
The threshold that determines whether you must deposit federal taxes electronically has been increased from $50,000 to $200,000. You must use the Electronic Federal Tax Payment System (EFTPS) to make electronic deposits of all tax deposit liabilities that occur after 1999 if you deposited more than $200,000 in federal deposit taxes in 1998. If you do not meet the $200,000 threshold, electronic deposits are voluntary, even if you were required to deposit electronically in the past.
In addition, the waiver of the penalty for failure to deposit taxes electronically has been extended for most taxpayers to deposit obligations incurred before January 1, 2000. This waiver was scheduled to expire on July 1, 1999. However, the waiver expired as scheduled on June 30, 1999, for taxpayers who deposited more than $200,000 in taxes in 1998.
Partnerships with more than 100 partners are not required to file partnership returns electronically for tax years ending before December 31, 2000. However, calendar year domestic partnerships filing Form 1065 that have the capability to file their 1999 partnership tax returns electronically are encouraged to do so beginning on March 15, 2000.
© Copyright 2000 Raymond S. Kulzick. All rights reserved. 000120.
This publication provides business, financial planning, and/or tax information to our clients. All material is for general information only and should not be acted upon without seeking appropriate professional assistance.