Hartman Blitch & Gartside-Tax Tip 1997 Tax Law

1997 Tax Law Changes

THINGS TO DO IN 1998 BECAUSE OF 97 TAX LAW CHANGES First, you may want to adjust withholding on your paycheck (or your estimated tax payments), due to several changes in the tax laws. The new tax credit for children under 17 is $400 per child in 1998. Remember, if your adjusted gross income (AGI) exceeds $110,000 for joint returns or $75,000 for single filers, the credit is eliminated. Also the HOPE tax credit for tuition paid in 1998 is up to $1500 per student for the first two years of post-secondary education (College). If you do not qualify for the HOPE CREDIT, there is the LIFETIME LEARNING CREDIT (LLC). The LLC is up to $1000 (20% of up to $5000 if tuition paid after June 30, 1998). The HOPE and LLC are phased out with AGI over $80,000 for joint filers or $40,000 for single filers. If you have a student loan, you can deduct up to $1000 paid in 1998, but the deduction is phased out if your AGI is $60,000 for joint filers or $40,000 for single filers.

Secondly, if you have children under 18, you may contribute up to $500 per child to an education IRA starting in 1998. It is not deductible, but any earnings are tax free if spent on higher education. Again, contributions are eliminated if your AGI exceeds $150,000 for joint filers or $95,000 for single filers.

Contributions to the new ROTH IRA can be made in 1998. Non-deductable contributions up to $2000 annually can be made (reduced by any other IRA contributions except educational $500 IRA). Earnings are tax-free if account is open for more than 5 years and distribution is made after 591/2 years old. Contribution is phased out and eliminated for AGI's over $150,000 for joint filers and $95,000 for single filers.

In 1998, you can rollover existing IRA's to a ROTH IRA. The rollover amount will be included in taxable income over four years. Future earnings will be tax free as any other ROTH IRA contributions. You can rollover only if your modified AGI does not exceed $100,000.

Starting in 1998, individuals, who are not active participants in an employer retirement plan but their spouse is, can make Traditional IRA distributions which are deductible. In the past, if your spouse was a participant of an employer retirement plan, you could not make a deductible contribution. If your AGI exceeds $150,000 the deduction is phased out or eliminated.

Make up to $2000 non-deductible IRA contribution if you do not qualify for any other type of IRA. The contribution will not be deductible but, the earnings will grow tax deferred (taxed when withdrawn only). Alternatively, you may want to consider an annuity. You are not limited to $2000 it is still not deductible, but the earnings grow tax deferred.

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