Tax Tips on Deductions

Q: When should I itemize deductions?

A: You should itemize if your total allowable deductions exceed your standard deduction.

The standard deduction is $4,300 if you are single or $7,200 if you are filing a joint return. If you are over 65 or blind, your standard deduction is higher.

Q: Both my spouse and I are covered by a retirement plan at work. Can we make a deductible IRA contribution?

A: Yes, if your adjusted gross income (AGI) is under $51,000, the contribution is fully deductible. If your AGI is between $51,000 and $61,000, a contribution can be made, but the deduction is limited. If your AGI is over $61,000, you can make a contribution, but it is not deductible.

If neither spouse is covered by a retirement plan, you can make a deductible IRA contribution regardless of income.

If one spouse actively participates in an employer plan and the other does not, the spouse who does not participate may make a deductible IRA contribution, provided AGI on the joint return is $150,000 or less. If your AGI is between $150,000 and $160,000, your contribution is partially deductible.

Q: Should I consider a Roth IRA?

A: Roth IRA contributions are not deductible. $2,000 per person is the maximum contribution, provided AGI is under $150,000 per couple. Withdrawals can’t begin before age 591/2 without penalties. There is no requirement to take minimum distributions by age 701/2. Qualified distributions meeting certain requirements can be withdrawn tax free.

You may rollover (transfer) funds from an existing IRA to a Roth IRA. This conversion can be made in any year your AGI is less than $100,000. However all converted funds become taxable income. (The elective four-year income spread was only available for 1998.)

Remember, the maximum annual contribution to an IRA of any type is $2,000.

Q: Are child care expenses deductible?

A: A percentage of the cost of child care while you work is allowed as a direct credit against your tax if you have a child under age 13. If you participate in a reimbursement plan through your employer, your credit will be reduced.

Q: My child graduated from high school but still lives at home. Can I still claim her as a dependent?

A: Generally, yes, if you provide more than half of her total support and if at least one of the following apply:

• the child is under 19 years of age
• the child is under 24 years of age and a full-time student
• the child had a gross taxable income under $2,750.

Q: What is the 1999 personal exemption and what credits are available in 1999?

A: The amount is $2,750 per exemption. However, if you are eligible to be claimed as a dependent by someone else, you are not allowed an exemption for yourself. There is a child tax credit of $500 for each qualifying child who is under 17 at the end of 1999. This credit begins to phase out with AGI in excess of $110,000 for joint returns ($75,000 single filers). There are several education credits available. Please check with your CPA.

Q: What interest is deductible?

A: Interest paid on acquisition or improvement of personal or second residence and home equity loans are generally deductible as home mortgage interest.

Interest paid on loans to carry investments is deductible, but only to the extent of eligible investment income.

Interest paid on qualified education loans for higher education expenses is deductible if the taxpayer is legally obligated to make the interest payments on the loan. The deduction is limited to interest paid during the first 60 months in which payments are required.

Interest paid solely for personal reasons, such as credit card interest, is not deductible.

Q: Can I deduct interest paid to my parents on money used to purchase my home?

A: Yes, if your parents record a mortgage against your home. The interest is deductible, subject to the same rules as if you borrowed from a bank.

Q: Do I need a receipt for my charitable contributions?

A: You need a statement from the charitable organization if you gave $250 or more at any one time.

If your donation of property exceeds $500 in 1999, you must file Form 8283. Also, you must have an appraisal for donations of nonmarketable securities valued at more than $5,000.

Q: Are my car license fees deductible?

A: Yes, for the amount paid based on the value of the car. The deduction for each car is the amount paid less $35, less plate, inspection and filing fees.

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