THE NO. 1 housekeeping change in your federal tax return this year applies to your Social Security number.
This number used to be printed on the address label that comes in the mail with your tax-instruction booklet. You peel off the label and stick it on your tax return, before sending it back.
Some taxpayers complained about exposing their Social Security number to the world. So this year, it's not there. Instead, you have to write the number on the form yourself, as well as your spouse's number if you're filing jointly. You also need a number for every dependent claimed.
The IRS also wants your daytime phone number this year. That's part of its new, consumer-friendly face. It may call you to resolve tax processing questions -- for example, missing information and tax schedules.
Other housekeeping changes:
Inflation. Average prices rose so little last year that tax thresholds linked to inflation rose very little, too. Here's what's higher on your 1998 returns:
(1) Standard deduction. Use it, if your itemized deductions wouldn't exceed the standard amount. Singles get $4,250; couples filing jointly, $7,100; heads of households, $6,250. There are higher deductions for people 65 and older, and the blind.
(2) Personal exemptions. You can deduct $2,700 for yourself and every person you claim as a dependent on your return. Exemptions phase out for higher-income people.
The rules are different, however, if a dependent files a tax return of his or her own. The dependent cannot claim a personal exemption, too.
(3) Itemized deductions. If your adjusted gross income exceeds $124,500, married or single, you can't claim certain itemized deductions in full. This haircut affects your deductions for various kinds of state and local taxes, home mortgage interest, charitable gifts, job expenses and most miscellaneous deductions.
(4) Earned income credit. Low-income people with wages get a tax credit. ("Wages" includes disability benefits paid under an employer's disability retirement plan -- up to the plan's minimum retirement age.) If you owe no taxes, you get the credit in the form of a government check.
You get the credit if you earned less than $30,095 and have more than one child; $26,473 for one child; and $10,030 with no child. To qualify you for the credit, the child has to have lived with you, in the United States, for more than half of 1998 and meet certain other tests. The credit is paid on a sliding scale.
(5) Social Security. Workers are taxed on wages up to $68,400. This number is linked to the average wage index, and rose 4.6 percent last year. Medicare taxes are paid on total income.
Health insurance. If you're self-employed, you can deduct 45 percent of the premium you pay for health insurance -- up from 40 percent last year.
Foreign taxes. You may think this has nothing to do with you, but it does if you own a international mutual fund. Your fund probably paid some foreign income taxes, and reported them on your year-end statement.
If the tax came to $300 or less ($600 for a married couple filing jointly), and all your foreign income was from passive investments such as interest or dividends, you can use your regular, 1040 return to subtract that money from the U.S. tax you owe. For higher amounts, you have to file the devilish Form 1116.
Home sales. If you used your home as a principal residence for at least two of the five years before the sale, you can exempt the first $250,000 in profits when you sell ($500,000 for couples filing jointly, provided that both of you meet the two-year test).
But what if you lived there for less than two years? In that case, you can generally exclude a proportional share. For example, after one year, couples could exclude up to $250,000 in gains and singles, up to $125,000. You get this break if you owned the home on Aug. 5, 1997, or had to move because of a change in your health or place of employment.
You owe taxes currently on any profits over the excluded amount. There's no more tax-deferred rollover on home sales.
Driving expenses. If you drove your car on business, and your expenses weren't reimbursed, you can deduct 32.5 cents a mile plus parking and tolls. For miles driven while doing charity work, you get 14 cents.
Washington Post Writers Group
Pub Date: 3/22/99