TAX SUPP L EMEN T 1999

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Change ofAddressDon’t let a refund get lost orreturned to the Internal RevenueService. Taxpayers should add theIRS to their list of people and placesto notify about their change ofaddress. If the IRS doesn’t havetheir current address, then a taxrefund or any letters about pastreturns may never get to them. Fillout IRS Form 8822 and send it tothe IRS.

People starting a family think aboutmany things, like naming theirchild, clothing, education and so on.But one thing they might not havethought about is the tax benefit ofhaving children. Sure, they proba-bly know about the exemption for adependent, but this year there’sanother tax benefit — the child taxcredit.

Depending on their income,people may be able to claim up to a$400 credit on their 1998 tax returnfor each qualifying child under age17. This means they can reduce thetax owed by up to $400 for eachchild — not a bad deal! For familieswith one or two children, the creditis nonrefundable. In other words,they may use the credit to reducethe tax they owe to zero, but theywould not receive any remainder asa refund. However, if they havethree or more children, a portion ofthe child tax credit may be refund-able. (The maximum credit will riseto $500 per child in 1999.)

As with many things in life,there are limits that come with thebenefits. The amount of the childtax credit depends on one’s income.The value of the credit is $400 perqualifying child, but the total creditis reduced by $50 for each $1,000,or part thereof, that their adjustedgross income exceeds $110,000 forjoint filers, $55,000 for married fil-ing separately, and $75,000 for sin-gle filers.

For more information about thecredit, see the instructions for Form1040 or Form 1040A, or visit theIRS Web site at www.irs.ustreas.gov.

A Message to Taxpayers from IRSCommissioner Charles O. Rossotti.

You might have heard recentlythat the IRS is changing. It’s true. I’dlike to offer a few comments aboutour new emphasis on customer ser-vice and fairness to all taxpayers andgive you a glimpse of the new IRSthat will serve all taxpayers better.We’re not just putting a new face onthe IRS, we’re fundamentally chang-ing our organization and our businessphilosophy to serve you better.

The new IRS will be organizedwith taxpayer needs in mind. We’ll becomposed of “operating divisions”that will specialize in working withgroups of taxpayers that have similarneeds. One division will focus onhelping our largest group of taxpay-ers, those who have only wage andinvestment income. Other divisionswill work with self-employed andsmall business taxpayers, corpora-tions and tax-exempt organizations.Our new organization will result inmore of our employees being avail-

able to work directly with taxpayersand give them the information andassistance they need.

Over the next couple of years,we’ll be modernizing the way wework, with more focus on under-standing, solving and preventing tax-payer problems. Just as companiesdevelop very particular marketingprograms to reach customers withdiffering needs, we at the IRS will betailoring our publications, education,communications and assistance pro-grams to taxpayers with particularneeds. We’ll be making filing easierfor each taxpayer by providing easilyaccessible, high-quality assistance.All of our operations will be designedto help taxpayers prevent most prob-lems before they occur.

We’re also taking advantage oftechnology and introducing moreelectronic products and services fortaxpayers. Millions more taxpayersused our popular e-file and TeleFileprograms last year, and we’re makingthings even easier for e-filers in 1999.

Our latest innovation will allow e-fil-ers who owe taxes to have their taxpayments transferred directly to theU.S. Treasury from their bankaccounts. Traffic on our Internet site,where you can find tax help anddownload many of our forms andpublications, has nearly tripled. Wehave new electronic options for busi-nesses, including 941TeleFile for fil-ing employment tax returns by phoneand the Electronic Federal TaxPayment System (EFTPS) for mak-ing tax payments. We’re not stoppingthere. We have plans for many moreinnovations in electronic filing, pay-ment and communications that willmake filing and paying taxes eveneasier.

At the IRS, we’re working hard toserve taxpayers better. What we’redoing today is only the beginning ofan IRS that is re-dedicated to highstandards of customer satisfactionand efficiency.

IRS Modernization Is Good News for Taxpayers

Kids Are a Tax Bonus

An IOU forTaxes DueThe taxes are finished. The bottomline reads “Amount You Owe.” Butthe money’s not there. Now what?

“People should ask the InternalRevenue Service about their pay-ment options,” said John Dalrymple,IRS Chief Operations Officer. Thosewho can’t pay their tax bills in fullshould f i l l out an Ins ta l lmentAgreement Request (Form 9465)and send it to the IRS along withtheir tax returns.

“This single-page form allowspeople to estimate a monthly pay-ment that will fit within their budgetand allow them to pay off the taxesowed in a reasonable period oftime,” explained Dalrymple.

An installment agreement gener-ally must be approved by the IRSand some additional informationmay be required. However, under anew tax law provision beginningJuly 22, 1998, the IRS must grant aninstallment agreement if:

● the tax is owed by an individ-ual and is not more than $10,000,

● the taxpayer has not failed tofile or pay tax in the preceding fiveyears,

● the taxpayer has not enteredinto an installment agreement underthese provisions in the precedingfive years,

● the agreement requires fullpayment within three years, and

● the IRS determines that thetaxpayer is not financially able tomake full payment immediately.

Once the installment agreementis set, taxpayers must meet tworequirements: they must agree tomake their installment payments ontime, and they must stay currentwith their federal taxes during theagreement period. If they fail tomeet either of these conditions, theywill default on the installmentagreement and be required to paytheir tax bill in full.

“Before entering into an install-ment agreement, people shouldexplore all financial sources avail-able that would enable them to paythe full amount of taxes owed,” saidDalrymple. This is importantbecause they will face additionalcosts when they enter into a longer-term payment arrangement. There isa $43 fee for an approved install-ment agreement. In addition, inter-

est and late-payment penalties areadded to any unpaid tax. People maybe able to obtain loans at banks orother lenders with more favorablerates. Those who decide to request aninstallment agreement should pay asmuch of their tax bill as they can withtheir return to reduce the amount ofinterest and penalties on the unpaidtax.

Another payment option can helppeople recover from severe finan-cial debt—an offer in compromiseallows people to pay an amount lessthan the full amount of taxes owed.If their financial situation is suchthat it’s obvious they may never beable to pay all the taxes owed, or thereis a pending dispute regarding the taxliability, the IRS may accept an offer in compromise. “Although this particular payment option can beinstrumental in helping a taxpayerrecover from severe financial debt,many don’t know it exists,” saidDalrymple.

Before entering into an offer incompromise, most people mustcomplete Form 656 and a compre-hensive financial statement showingassets, liabilities and income. Thefinancial statement is no longerrequired if the only issue is a disputeover the amount of tax. The offermust reflect the maximum they canpay. Also, they must agree to meet alltheir federal tax obligations for fiveyears or until the amount offered ispaid in full, whichever is longer.Those who fail to meet the terms ofthe offer will once again owe alltheir back taxes in full.

“The IRS believes an offer in com-promise makes good business sense,”said Dalrymple. “It benefits taxpayersby giving them the opportunity toget out from under a heavy financialburden. It gives them a fresh start andbrings them back into the tax system.It also benefits the IRS and all tax-payers by bringing in taxes that maynot be collectible any other way.”

So for people who find themselvesfacing an unexpected tax bill,and payment in full just isn’t anoption, remember these paymentalternatives. For more information,call the IRS at 1-800-829-1040.

Call IRS forServiceIt’s easier to get tax help and infor-mation from the Internal RevenueService. Print, fax, telephone andcomputer services are available allyear long. Here are some numbersto remember. “800” and “877” num-bers are toll-free.

● Free forms and publications— 1-800-829-3676 (1-800-TAX-FORM).Get Publication 910 for a list ofmost publications, some in Spanish.

● CD-ROM of most IRS forms andpublications—buy a CD for $25 fromthe National Technical InformationService at 1-877-233-6767 or for $18at www.irs.ustreas.gov/cdorders onthe Internet.

● Recorded tax messages onTeleTax—1-800-829-4477 for auto-mated refund information and tohear over 140 tax topics, some inSpanish.

● Hearing-impaired tax assis-tance—1-800-829-4059 usingTTY/TDD equipment.

● Tax assistance—1-800-829-1040. ● Taxpayer Advocate—

1-877-777-4778 to help cut throughred tape when problems can’t other-wise be resolved.

● IRS on the Internet—Web: www.irs.ustreas.gov File Transfer Protocol:

ftp.irs.ustreas.govTelnet: iris.irs.ustreas.gov

● Modem—1-703-321-8020● Forms and instructions by

TaxFax—dial 1-703-368-9694 fromthe fax machine.

● International TaxFax numbers—dial from the fax machine.

Bonn: [49] (228) 339-2822/2824San Juan: (787) 759-4524/4525Tokyo: [81] (3) 3224-5465

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Picking a TaxProfessionalMany people admit that taxes arejust too much to deal with. So theydecide to hire a professional who isfamiliar with the ins and outs of taxlaws.

Enrolled agents, attorneys andcertified public accountants are allprofessionals with varying degreesof specialized expertise in financesand federal taxes. To help make thebest choice, people should askthemselves these questions beforepicking a person or firm to handletheir taxes: How complicated is mytax situation? Do I know others whohave used the preparer? Does thepreparer offer the electronic filingand payment options I want? Willthe preparer be there later in theyear, or in a year or two, to answerquestions on my return? What doesthe preparer offer for the fee beingquoted?

The answers will make thesearch for a tax professional easier.

The Internal Revenue Service offersfree tax help and year-round cus-tomer service to taxpayers. Get freePublication 910, Guide to Free TaxServices, to read all about the taxhelp, publications and services forindividuals and businesses. Call 1-800-829-3676 to order. Here aresome highlights.

Advocates for TaxpayersPeople who have not found help

with their tax problem through tra-ditional IRS contacts can ask theirtaxpayer advocate for help. Theadvocate has the authority to cutthrough red tape and intercede forpeople who are experiencing a hard-ship because of a tax problem. Calltoll-free 1-877-777-4778.

Volunteer Tax HelpGet help with basic tax returns

through the Volunteer Income TaxAssistance (VITA) and Tax Counse-ling for the Elderly (TCE) programs.Both provide specially trained vol-unteers to prepare basic tax returns.VITA and TCE volunteers helpolder individuals, those with dis-abilities, and non-English speakingtaxpayers with their taxes in placesconvenient to them. Call the IRS forthe nearest location.

Braille and Large-PrintMaterials

Federal tax materials in Brailleare available at Regional Librariesfo r t he B l ind and Phys i ca l l yHandicapped in conjunction with theLibrary of Congress. These materialsinclude Publication 17, Your FederalIncome Tax; Publication 334, TaxGuide For Small Business, andForms 1040, 1040A and 1040EZ,and Schedules A and B, wi thinstructions. Large-print copies ofForm 1040, i t s schedules andinstructions are in Publication 1614.Large-print copies of Form 1040A,Schedules 1, 3 and EIC, and instruc-tions are in Publication 1615. Thecopies can be used as worksheets tofigure tax, but can’t be filed as taxreturns.

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For people who owned stocks, mutualfunds or other investments last year,chances are the new capital gains taxrules will affect how they file their taxreturns and how much tax they’ll owefrom those investments.

Last year, the Taxpayer Relief Actof 1997 went into law, affecting mil-lions of taxpayers on their 1997 taxreturns. Many were able to takeadvantage of lower capital gainsrates. This year, the benefits of theAct have been expanded and nowapply to sales of property held morethan one year, instead of 18 months.

If the net capital gain is from col-lectibles or Section 1202 gain (from

qualified small business stock), thenthe maximum capital gains rate is 28percent. If the net capital gain is fromunrecaptured Section 1250 gain(from depreciable real property), thenthe maximum capital gains rate is 25percent. If the net capital gain is fromother gain, then the maximum rate is20 percent, but only 10 percent forgains that would otherwise be in the15 percent tax bracket.

Taxpayers who have capital gainsdistributions from mutual funds mustuse Schedule D to report them, ratherthan Schedule B. Those who haveordinary dividends of more than $400must file Schedule B.

For more information about thecapital gains tax changes, see a finan-cial advisor or get free IRSPublication 550, Investment Incomeand Expenses, Publication 564,Mutual Fund Distributions, andSchedule D and its instructions. Call1-800-829-3676 to order, or visit theIRS Web site at www.irs.ustreas.gov.

Capital Gains Tax Expanded

IRS Offers Free Help

Make those golden years more goldenwith careful retirement planning.Whether retirement days are aroundthe corner or well over the horizon,it’s important to plan ahead. Formany, setting up an individualretirement arrangement (IRA) canprovide that extra peace of mind.

IRAs are savings plans that giveindividuals tax benefits as an incen-tive to set aside money until retire-ment. Contributions to a traditionalIRA may be deductible and theearnings on the account are nottaxed until withdrawn. Althoughwithdrawals are generally taxable,retirees may pay a lower tax ratethan when they were working.

Anyone who has taxable com-pensation — such as wages, tips,commissions or taxable alimony —and who will be under age 701/2 atthe end of the year, can set up a tra-ditional IRA. Money can be put intoan IRA any time during the year orby the due date of the tax return forthat year, not including extensions.

Annual IRA contributions arelimited to the lesser of $2,000 or theperson’s compensation, but if onlyone spouse has compensation, con-tributions may still be made to anIRA for the other spouse. If neitherspouse is covered by an employerretirement plan, the contributions toa traditional IRA are deductible ontheir tax return. If either spouse iscovered by an employer’s plan, thedeductibility of IRA contributionsdepends on their joint income level.

Generally, individuals cannotmake withdrawals before turn-ing age 591/2 without being penal-ized. But new rules allow penalty-free withdrawals for certain purposes,such as for higher education expenses and up to $10,000 for afirst-time home purchase. Otherpenalty exceptions apply toamounts used for unreimbursedmedical expenses that are more than71/2 percent of adjusted gross incomeor for medical insurance for a tax-payer who receives unemploymentcompensation for at least 12 consec-utive weeks.

Congress added some new IRAprovisions beginning in 1998. Oneis a new plan called the Roth IRA.The Roth IRA features nondeductiblecontributions, with tax-free distribu-

tions if they begin after the fifth yearthe taxpayer has a Roth IRA (startingwith the initial contribution year) andthe taxpayer is at least age 591/2, ordisabled, or the distribution is a qualified first-time home buyerdistribution (limited to $10,000). Ifthe owner dies, the beneficiary canreceive tax-free distributions if ithas been more than five years sincethe owner opened the Roth IRA.

Annual contributions to all IRAs—Roth and traditional—are limitedto a total of $2,000 per person. Thelimit for Roth IRAs is phased out as adjusted gross income (AGI)increases from $95,000 to $110,000($150,000 to $160,000 on a jointreturn). Unlike the traditional IRA,Roth IRAs allow people to con-tribute after they reach age 701/2 anddon’t require withdrawals whilethey are living.

People with AGI under $100,000can convert a non-Roth IRA into aRoth IRA. They will have to pay taxas though they had withdrawn thefunds, but there is no early with-drawal penalty. If the conversiontakes place in 1998, the taxableamount may be spread over fouryears. That is, one-quarter of thetaxable conversion is included inincome in 1998, 1999 and so on.Married couples filing separatereturns can’t convert a non-RothIRA into a Roth IRA.

Publication 590, IndividualRetirement Arrangements (IRAs),has information on deductible andnondeductible contributions, with-drawals, the new rules beginning in1998 and what actions will result in penal t ies . Publ icat ion 553,Highlights of 1998 Tax Changes,discusses recent tax law. To order,call 1-800-829-3676 or visit the IRSWeb site at www.irs.ustreas.gov.

Double CheckTax ReturnsA couple of misplaced numbers oran incorrect name can stall the pro-cessing of a tax return and anyexpected refund. It’s worth the timeto double check every tax form andschedule before sending it off to theInternal Revenue Service. Here’s alist of things to look out for.

● Numbers that are transposed,left out or totaled incorrectly.

● Incorrect or missing SocialSecurity numbers (SSNs). Alldependents must have one (useForm SS-5 to apply). SSNs won’t bepreprinted on the tax package label,so people must be sure to writetheirs on the return.

● Incorrect or missing employeridentification numbers (EINs) foremployers and sole proprietors.

● Names that have changedbecause of marriage or divorce.(Notify the Social Security Admin-istration (SSA) immediately after achange.)

● Aliens who do not qualify forSSNs must get IRS-issued individ-ual taxpayer identification numbers(ITINs) (use Form W-7 to apply).

● People in the process of adomestic adoption may need anadoption taxpayer identificationnumber (ATIN) for the child (useForm W-7A to apply).

Don’t forget to use the label andenvelope from the tax package.Doing so can reduce the chance ofmisrouted mail or refunds becauseof hard-to-read handwriting. Makesure the envelope has enoughpostage and complete addresses,both return and IRS, so it won’t goastray in the mail. Remember tosign and date the return. If taxes aredue, make the check payable to theUnited States Treasury and don’tstaple it to the return.

To get IRS Forms W-7 and W-7A,call 1-800-829-3676. To get SSAForm SS-5, call 1-800-772-1213.

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IRAs Make Dollars and Sense

When filling out tax forms this year,take note of some of the changesthat could make the differencebetween getting a refund and payingmore taxes.

Depending on their income, peo-ple may be able to claim up to a$400 credit for each qualifying childunder age 17. New this year, thechild tax credit could reduce the taxto zero, or even become a refund-able credit for taxpayers with threeor more qualifying children.

People can benefit from a num-ber of educational incentives. TheHope credit lets people below cer-tain income levels claim a credit forthe first two years of post-secondaryeducation. It’s limited to $1,500 peryear for qualified tuition andexpenses. The lifetime learningcredit applies to qualified tuitionand expenses for undergraduate,graduate and professional degreecourses paid after June 30, 1998, forcourses starting after that date. Thecredit is 20 percent of expenses, upto $1,000 per return. Certain limitsapply to both credits.

In addition to these credits, peo-ple can set up Education IRAs fea-turing nondeductible contributionsof up to $500 a year for a namedbeneficiary under age 18. And peo-ple can tap into their other IRAs topay for qualified higher educationexpenses. Also, a limited amount ofinterest paid on higher educationloans is deductible. Some restric-tions apply to each benefit.

Another new IRA is the RothIRA. It features nondeductible con-tributions, with tax-free distribu-tions if they begin after the fifthyear the taxpayer has a Roth IRA,the taxpayer is at least age 591/2 ordisabled, or the distribution is aqualified first-time home buyer dis-tribution.

New capital gains tax rules mayreduce the tax owed on investments.The benefits of lower rates nowapply to sales of property held morethan one year instead of 18 months.Schedule D will take taxpayers stepby step through the rates and rules.

The earned income tax credit(EITC) could be worth a few dol-lars, or up to $3,756 for people withmore than one qualifying child, upto $2,271 for one qualifying child.For those with no children, theEITC could be worth up to $341.The amount people can earn andstill be eligible for the credit in 1998is $30,095 for those with more thanone child, $26,473 with one qualify-ing child, and $10,030 with no chil-dren. People who aren’t eligible forthe EITC, but who claim it anyway,could be prohibited from taking itfor up to 10 years.

Rules for getting installmentagreements, offers in compromiseand innocent spouse relief are nowless stringent. And people whohaven’t been able to resolve theirproblems through normal IRS chan-nels have a new toll-free line to ataxpayer advocate: 1-877-777-4778.

Social Security numbers will notbe printed anywhere on the taxinstruction booklets or labels, sopeople need to make sure they puttheir correct SSNs on their taxreturns and other forms. And thosewho owe taxes can write theirc h e c k s t o t h e U n i t e d S t a t e sTreasury, but don’t staple the checkto the return.

Get details on these topics andmore in the tax instruction bookletsor in free IRS Publication 553,Highlights of 1998 Tax Changes.Call 1-800-829-3676 to order. Orcheck out the IRS Web site atwww.irs.ustreas.gov.

Credit CardsMay Be Usedto Pay Taxes

This year, some people who owe theInternal Revenue Service moneyhave a new payment option. “Wehave two arrangements that allowthe payment of federal income taxesby credit card for the first time,”said Bob Barr, IRS e-file executive.

“One a r rangement wi l l l e t people who e-file using Intuit’sTurboTax® or MacInTax® soft-ware package pay the amount owedto the U.S. Treasury with anyNOVUS credit card,” explainedBarr. NOVUS card brands includeDiscover Card® and Private Issue®

and other NOVUS cards.The other arrangement processes

credit card payments by phonethrough an agreement with USAudiotex. “After e-filing by TeleFile,a personal computer or through anauthorized e-file provider, peoplecan call a toll-free number to chargethe balance due,” said Barr. Thosewho file a paper return may also use this system. US Audiotex willaccept Mastercard, American Express,and NOVUS credit cards.

The IRS will not have any feesfor credit card payments; however,users will pay the companies a con-venience fee based on the amountcharged.

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Tax Changes for 1998 Can Benefit Taxpayers

People continuing their education orplanning for a child to attend col-lege should learn about the educa-tional incentives available to them.These incentives could change thebottom line on their tax returns.

The Hope credit lets peoplebelow certain income levels claim acredit for the first two years of post-secondary education expenses. Thecredit is limited to $1,500 per yearfor qualified tuition and expenses.Tuition expenses eligible for thecredit must be reduced by any tax-free funds, such as grants or schol-arships. Graduate and professionallevel fees are not allowed. The creditapplies to payments made after1997, for academic periods startingafter that year.

People can claim the Hope creditfor each eligible student in theirfamily. The student must be enrolledin at least half of the full-time work-load for the course of study. Thecredit is not allowed to studentsconvicted of a felony drug offense.A person can claim the Hope creditfor only two tax years for each eligible student.

The lifetime learning creditapplies to qualified tuition andexpenses for undergraduate, graduate,and professional degree coursespaid after June 30, 1998, for coursesstarting after that date. People undercertain income levels can claim thiscredit for an unlimited number ofyears. The credit is 20 percent ofexpenses, up to a maximum creditof $1,000 per return. The creditamount doesn’t increase with addi-tional eligible students in the family,and it cannot be claimed for students’expenses during years when the Hopecredit is claimed for those students.

Both the Hope and lifetimelearning credits are reduced rateablyas a taxpayer’s adjusted grossincome rises from $40,000 to$50,000 (double those amounts fora married couple filing jointly).

In addition to these credits, peopleunder certain other income levelscan deduct a limited amount of theinterest paid on qualified highereducation loans, but only for the first60 months of loan payments. Themaximum deduction is $1,000, andstudents must have been enrolledfor at least half the normal full-time

course load required. This deductionphases out as adjusted gross incomerises from $40,000 to $55,000($60,000 to $75,000 for marriedcouples filing jointly). Taxpayers donot have to itemize on Schedule Ato claim the student loan interestdeduction.

People who are dependents andmarried couples filing separatereturns cannot claim the student loaninterest deduction or the Hope andlifetime learning credits.

Individual retirement arrange-ments (IRAs) can help provide foreducation as well as retirement.People who have IRAs can tap intothem to pay for qualified higher edu-cation expenses. They won’t have topay the 10 percent penalty tax onearly withdrawals, but they will haveto pay tax on the amount withdrawn.

The Education IRA is set up as afunding vehicle to pay educationalexpenses of a named beneficiary. Itfeatures nondeductible contributionsof up to $500 a year per beneficiary,with no tax on the earnings if with-drawals are less than qualified highereducation expenses in the year of thewithdrawal. The beneficiary mustbe under 18 when the contribution ismade. The $500 limit is reduced if acontributor has income above certainlevels.

And for people whose employerspay for their education, the employ-er-provided educational assistance isexcluded from their wages. The max-imum exclusion amount is $5,250 andis for undergraduate courses, not forgraduate level courses.

Publications 590, IndividualRetirement Arrangements (IRAs),and 970, Tax Benefits for HigherEducation, have more details aboutthese tax breaks and the incomephaseout ru les . To order, ca l l 1-800-829-3676 or visit the IRSWeb site at www.irs.ustreas.gov.

Faster RefundsWith DirectDepositExpecting a tax refund? Get it fasterby directly depositing it into a bankaccount.

Depositing a refund into achecking or savings account is moresecure because there’s no check toget lost. And it takes the U.S.Treasury less time than issuing apaper check. So people can get theirrefunds faster without making a spe-cial trip to the bank.

Direct Deposit is available forall individuals, regardless of howthey file their returns — by phone,computer or mail. Those who mailthe IRS a paper return can fill in the“Refund” section.

People should ask their financialinstitutions if they accept DirectDeposit, including joint refunds intoindividual accounts. They can alsoverify the correct routing andaccount numbers.

Although Direct Deposit can beused in most situations, it can’t beused when filing a prior year’sreturn. Also, Direct Deposit will notoccur if the name on the tax returnand bank account don’t match.Direct deposits of refunds won’t gointo foreign bank accounts, either.If, for some reason, the refund can’tbe directly deposited into a taxpay-er’s account, the U.S. Treasury willsend a check instead.

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Educational Incentives Give Tax Breaks

Taxes inSpanish

People who need tax help in Spanishcan get free IRS Publication 579SP,Cómo Preparar la Declaración deImpuesto Federal. It has informationin Spanish about which form to file,which filing status to choose, taxableand nontaxable income and some ofthe more common tax credits. Call 1-800-829-3676 to order.

The Taxpayer Relief Act of 1997created an Education IRA that is nota retirement savings vehicle, but oneused to pay for qualified higher education expenses of a designatedbeneficiary.

The Education IRA featuresnondeductible contributions of up to$500 a year per beneficiary, with notax on the earnings if withdrawalsare less than qualified higher educa-tion expenses in the year of thewithdrawal. The beneficiary mustbe under 18 when the contribution ismade. The $500 limit is reduced(phased out) if a contributor hasadjusted gross income above$95,000 ($150,000 on a jointreturn).

Withdrawals not used for highereducation purposes will be partiallytaxable to the beneficiary and willgenerally be subject to an additional10 percent penalty. This will alsoapply to any amount remaining inan Education IRA when the benefi-

ciary reaches age 30. There is no taxon a rollover from a beneficiary’sEducation IRA to an Education IRAof certain family members.

Publications 590, IndividualRetirement Arrangements (IRAs),and 970, Tax Benefits for HigherEducation, have more informa-tion. To order, call 1-800-829-3676o r v i s i t t h e I R S We b s i t e a twww.irs.ustreas.gov.

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People who want their tax refundsfaster and their tax returns more accu-rate should use IRS e-file. This year,IRS e-file even offers people whoowe money several options to “filenow, pay later.”

The IRS’ electronic filing pro-gram, called IRS e-file, offers peopleincreased ease of filing, speedierdelivery of refunds and more accuratetax returns. Those who use e-file willget their refunds in half the time aspaper filers, even faster whendeposited directly into a bankaccount. Since e-filed returns aremore accurate, there’s less chancepeople will hear from the IRS aboutmistakes on their returns.

“This year, IRS e-file offers addi-tional benefits to those who owemoney with their returns,” explainedBob Barr, IRS e-file executive. “Byproviding bank information whenthey file electronically, people candirect when they want their paymentmade to the U.S. Treasury.” Also for

the first time, taxpayers can choose topay their taxes with a credit card.

Payments can be made anytimeafter the tax return is filed until April15. “This feature will let people fileearly, have the peace of mind know-ing their returns have been acceptedby the IRS, and manage their financeswithout waiting until the last minuteto file and pay,” explained Barr.

There are several ways to use IRSe-file. People can ask their tax profes-sional to e-file their returns. They canuse their personal computer and com-mercial tax preparation software to e-file from home. In some cases, peoplewith simpler tax returns can use theirtelephones to file if they get a

TeleFile booklet in the mail.“Last year, more than 24 million

returns, or nearly 20 percent of allreturns, were sent to the IRS elec-tronically,” said Barr. “It’s our goal tomake e-file the preferred way to filewith the IRS.” The accuracy, speed ofrefunds, and ease of filing are bene-fits many people have noted in previ-ous years. “We think IRS e-file offerseven more this year since people whoowe money can file at any time duringthe tax season and pay by April 15using a credit card or authorizing awithdrawal from their bank account.And, of course, people can still e-fileand send a paper check i f theychoose,” Barr added.

IRS e-file This Year

New IRA for Education

The earned income tax credit(EITC) means extra cash in thepockets of many workers. But somewho are eligible for the credit don’tget it. Why?

“Because to get the EITC, peo-ple must file a tax return,” said JohnDalrymple, IRS Chief OperationsOfficer. “Some workers earn so lit-tle, they legally don’t have to file,”Dalrymple explained. “By not fil-ing, they’re missing out on moneythey’re entitled to receive—from afew dollars to as much as $3,756.”

The EITC is a special tax breakfor lower-income workers. It’s arefundable credit that reduces thetax some workers owe and may givethem refunds. A unique feature ofthe credit is that people can get iteven if they don’t owe any federaltax or they had no tax taken out oftheir paychecks.

The credit is based on theamount of income earned and thenumber of qualifying children theworkers have. A qualifying childcan be a son or daughter, adoptedchild, grandchild, or stepchild wholives with the taxpayer in the UnitedStates for more than half the yearand who meets certain age require-ments. There are special rules forfoster children. Workers without aqualifying child may also get a creditof up to $341.

To qualify, workers must haveearned income from wages or self-employment. Their 1998 adjustedgross income (AGI) must be lessthan $30,095 if they had two ormore qualifying children or lessthan $26,473 if they had only onequalifying child. A worker without aqualifying child must have AGI ofless than $10,030, be at least age 25and under 65, not be claimed as adependent on anyone else’s returnand must have lived in the UnitedStates for more than half the year.

Workers claiming the credit can-not have more than $2,300 ininvestment income, such as interestor dividends, and cannot be a quali-fying child of someone else. Specialrules apply to U.S. military person-nel, nonresident aliens and divorcedcouples who have dependents.

Certain workers may be able toget extra money added to their paychecks throughout the year withthe advance EITC. Details are onForm W-5, “Earned Income CreditAdvance Payment Certificate,”which they must fill out and give totheir employers.

While the IRS wants people whoare eligible for the credit to claim it,they are also cautioning taxpayerswho claim the credit to be certainthey qualify. “Due to new tax legis-lation, people who aren’t eligible forthe credit, but claim it anyway, willhave to meet additional requirementsif they want to claim the credit in the future. In some cases, they maynot be able to claim the credit for anumber of years,” said Dalrymple.

For more information on theEITC, call 1-800-829-3676 andorde r f r ee Pub l i ca t ion 596 , Earned Income Credit (in Englishor Spanish), and Form W-5. Orcheck out the IRS Web si te a twww.irs.ustreas.gov.

Missing Form W-2Employers have until February 1,1999, to issue a Form W-2 to eachemployee. Employees should checkwith their employers if they don’thave the W-2 within a couple daysafter that. If they still don’t get theW-2 by February 15, they may callthe IRS for help at 1-800-829-1040.

Tax Withholdingon GovernmentPaymentsPeople who get certain governmentpayments can choose to have federalincome tax withheld from them.Doing so can eliminate the need tofile and pay quarterly estimatedtaxes.

Those who get unemploymentcompensation, Social Security or tier 1 railroad retirement benefits,Commodity Credit Corporationloans or certain crop disaster pay-ments can make this choice. Fill outForm W-4V, “Voluntary WithholdingRequest,” and give one to each payerfrom which you get these types ofpayments. Call 1-800-829-3676 toget the form.

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Get Credit When It’s Due

Whether buying a first home or in theprocess of selling one, home owner-ship can have a big effect on taxreturns.

Some of the settlement fees andclosing costs can be deducted in thetax year the home is bought. Thesecosts include certain real estate taxes,mortgage interest and points thatmeet certain requirements.

Other costs may be included inthe basis of the property. Basis is away to measure the investment in ahome for tax purposes. Costs likeabstract and recording fees, surveysand owner’s title insurance areincluded in the basis.

People who itemize deductionscan deduct interest on most mort-gages secured by their first or secondhome. They can deduct qualifyingpoints on a loan to buy or improvetheir main home in the year they paidthem. And they can usually deductreal estate taxes imposed by state orlocal governments for the generalpublic welfare.

The Taxpayer Relief Act of 1997replaced two tax breaks for homesellers with a more generous one.Under the old law, those 55 and oldercould exclude up to $125,000 of gain.

And anyone who bought a replace-ment home within two years of thesale might postpone taxes on some orall of the gain. Under the new law,taxpayers can exclude up to $250,000of gain ($500,000 on a joint return, ifboth meet the residency requirement)from the sale of a home.

The new exclusion is allowedonce every two years, but only if theperson used the home as a principalresidence for at least two out of thefive years before the sale. The sellermust pay tax on any gain exceedingthe exclusion — the replacementhome rule no longer applies. If a per-son sells before satisfying the two-year residency requirement becauseof a change in employment or health,the maximum exclusion amount($250,000 or $500,000) is proratedby the percent of the two-year timemet. This proration also applies toanyone who owned a home on Aug.5, 1997, and sells it before Aug. 5,1999, regardless of whether there wasa change in employment or health.

Because of this larger exclusion ofgain, the average person may notneed to keep track of the home’s costbasis once the two-year residencyrequirement is met. Only if the home

sells for more than the maximumexclusion amount will the taxpayereven have to figure the gain. In thatcase, one would need accuraterecords of all items affecting thebasis. This includes improvementssuch as adding a room, finishing abasement or putting up a fence.

More information on buying,owning or selling a home is coveredin the following free publications.Call 1-800-829-3676 or check themo u t o n t h e I R S We b s i t e a twww.irs.ustreas.gov.

● Publication 523, Selling YourHome

● Publication 530, Tax Informationfor First-Time Homeowners

● Publication 936, Home MortgageInterest Deduction

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Sometimes happily ever after doesn’twork out, and two people end upgoing their separate ways. Althoughthey might divide their belongings,they can’t break up any previous taxbills or tax returns they filed together.

This is known as joint and severalliability. It means that one spouse isas liable as the other for all itemsappearing on returns they f i ledtogether and equally liable to pay allthe tax due, whether or not they’redivorced. So if a joint return is audited,each spouse is liable for any additionaltax that may be assessed, even if itwas from something the other spousededucted or forgot to report. In such asituation, a taxpayer could requestinnocent spouse relief from joint andseveral liability.

In 1998, Congress passed a lawmaking the requirements for obtain-ing such relief less stringent. Peoplecan request this relief in three ways—expanded innocent spouse relief,separate liability election and equi-table relief.

The expanded innocent spouserelief is a new version of an old law.Prior innocent spouse requirementswere relatively strict. The new lawrelaxes those requirements to a pointwhere taxpayers may be relieved of aportion of the additional assessmentthey did not know about or had noreason to know about.

Separate liability election allowscertain taxpayers to elect to have theadditional assessment limited to theportion that would be allocated to

their share of the item(s) at issue,based, for example, on their ownearnings or deductions.

Equitable relief is available whena person does not meet the conditionsfor innocent spouse or separate liabil-ity relief, but it would nevertheless beunfair to hold the person responsiblefor an unpaid tax or an additionalassessment. Such a case might arisewhen one spouse did not know, andhad no reason to know, that the otherspouse took the money intended forpaying the tax and used it for his orher own benefit instead.

The IRS has revised Publication971, Innocent Spouse Relief, andForm 8857, which people may use torequest this relief, to reflect the newprovisions of the law. Both are avail-able by calling 1-800-829-3676.

Relief for Innocent Spouses

Taxes and Home Ownership

The Internal Revenue Service offers aconvenient filing option for peoplewho like to prepare their own taxreturns using a personal computer.With tax preparation software avail-able commercially and their computermodems, they can file their taxes withIRS e-file.

IRS e-file, the IRS’ electronic fil-ing program, offers people increasedease of filing, speedier delivery ofrefunds and more accurate taxreturns. Since e-filed returns are moreaccurate, there’s less chance peoplewill hear from the IRS about mistakeson their returns.

“People can e-file from their PCswhether they expect a refund or owemoney,” said Bob Barr, IRS e-fileexecutive. “Last year, nearly 1 mil-lion people filed their tax returnsusing this option—nearly two and ahalf times the number in 1997.”Those who use e-file will get theirrefunds in half the time as paper fil-

ers, even faster when depositeddirectly into a bank account.

“This year for the first time, indi-viduals who owe money and use IRSe-file can choose to pay electronicallyby authorizing a withdrawal fromtheir bank account to make the pay-ment to the U.S. Treasury. This fea-ture will let people file early, have thepeace of mind of knowing theirreturns have been accepted by theIRS, and manage their finances andtime without waiting until the lastm i n u t e t o f i l e a n d p a y, ” B a r rexplained. Any amount due must bepaid to the U.S. Treasury by April 15.

The IRS hopes to make this filingoption totally paperless for many peo-ple. “This year we are offering peoplewho filed last year using their PCs theoption of using an e-file CustomerNumber similar to a PIN,” saidBar r. “This wi l l e l imina te theneed to send us a paper signaturedocument.”

To take advantage of IRS e-file,people can complete their returnsusing tax preparation software andsend the information electronicallyvia modem to a transmitter, who willforward it directly to the IRS. TheIRS sends an acknowledgment thatthe return was accepted.

C h e c k t h e I R S We b s i t e a twww.irs.ustreas.gov to find out moreabout this e-file option.

No Refund for Some

Expecting a refund, but haven’t paidcertain bills? Some people may findthemselves waiting a long time.Federal law allows income taxrefunds to be taken to pay off all orpart of past-due child and spousalsupport, delinquent student loans,income tax or other federal debts.The IRS will let people know iftheir refund was used to pay backwhat they owe.

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File Taxes from Home

More people are taking advantageof the IRS electronic filing optionsthat make filing their tax returnseasier, faster and more accurate.This year, those who owe moneywill have the option of paying elec-tronically also.

“We’re adding more features toour IRS e-file program for peoplewho owe money with their return,”explained Bob Barr, IRS e-file exec-utive. “Although they could havefiled early and written a check later,we found most people preferred towait until April 15 to file and paytogether. Waiting until the last

minute often led to careless errorsand long lines at the post office.Now, individuals can file electroni-cally as soon as they’re ready, getconfirmation that the IRS hasreceived their return, and pay whenthey choose. This option is similarto that used by many people to paytheir mortgages or to pay otherexpenses,” said Barr.

The new electronic paymentoption is available only to peoplewho file their returns electronicallyeither through a tax professional orfrom their personal computer usingtax preparation software, accordingto Barr. By providing bank accountinformation when they file electron-ically, people can designate whenthey want their tax payment made.Payments can be made anytimeafter the tax return is filed untilApril 15.

To find out more about electronicpayments and the IRS e-file options,check with your tax professional orcheck the IRS Web site under IRS e-file.

E-file Now — Pay Later

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When Elayne Goldstein’s telephonerings at the Internal Revenue Service,the call is usually from a taxpayer whohas an unresolved tax problem. Onthis day, the caller was complainingabout receiving a collection letter fromthe IRS and was expressing frustrationwith having made multiple contactswith different IRS employees abouthis problem—without a solution.

As far as Ms. Goldstein is con-cerned, the buck stops in her office.She is a taxpayer advocate at the IRSwith the authority to make sure thatthe IRS takes all necessary actions tocorrectly and completely resolve ataxpayer’s problem. “The most impor-tant aspect of being a taxpayer advo-cate is knowing that you can drop allother work and priorities to deal withthat individual taxpayer who needsyour attention at the moment,” Ms.Goldstein says. Last year, taxpayeradvocates like Ms. Goldstein madesure that some 237,103 cases nation-wide were effectively resolved.

Even though the IRS has had aProblem Resolution Program since1977, recent tax legislation has giventaxpayer advocates more indepen-dence from the IRS and more authorityto cut through the “red tape.”According to Ms. Goldstein, once sheconfirms that the taxpayer’s problemmeets criteria to be brought into theProblem Resolution Program, it isassigned to a caseworker within theIRS who is in the best position toresolve the matter. The caseworker isrequired to contact the taxpayer withinseven days to acknowledge receipt ofthe case. In that contact, the caseworkeris to provide his or her name and tele-

phone number, clarify what the prob-lem is, and provide the taxpayer witheither an expected date of completionof the case or the date by which thecaseworker will get back to the taxpay-er with the status of the case.

Taxpayer advocacy at the IRS hasw o n s t r o n g s u p p o r t f r o m I R SCommissioner Charles Rossotti. Mr.Rossotti, a business manager by trade,has put the IRS on a path of improvedcustomer service. He has been at theforefront of Problem Solving Days,where taxpayers who have unresolvedproblems can get one-on-one assis-tance from the IRS.

A provision in the recently enactedIRS Restructuring and Reform Actgives the taxpayer advocate greaterauthority to intercede on behalf oftaxpayers who are experiencing ahardship. The taxpayer advocatemust now consider such factors as thethreat of adverse action from the IRS,whether there is a delay of more than30 days in resolving taxpayer accountproblems, significant costs incurredby a taxpayer while waiting for relieffrom an IRS action, and irreparableinjury to, or long-term adverseimpact on, a taxpayer if relief is notgranted, when making a determina-tion of hardship.

According to Ms. Goldstein, theProblem Resolution Program is forthose people whose problem remainsunresolved after attempts to resolve thematter through traditional IRS contactshave been unsuccessful. Generally,most taxpayer problems can be resolvedon the first contact by either calling orwriting, or visiting an IRS office. Agood rule of thumb before contacting

the taxpayer advocate with a problem isif the taxpayer:

● Has contacted the IRS on thesame issue at least 30 days after aninitial inquiry or complaint, or 60days after the filing of an original oramended return or claim, or

● Has received no response fromthe IRS by the date promised, includingcommitment dates on IRS forms, or

● Believes that established systemshave failed to resolve the problem.

Taxpayers need to be aware of thefact that the advocates do not havethe authority to overturn the tax lawor regulations. However, the taxpayeradvocate does remain a strong ally ofthe public to help resolve those seem-ingly unsolvable problems with theIRS. “The most satisfying part aboutbeing an advocate is seeing a cus-tomer satisfied with the work we dofor them, regardless of whether theultimate results of the case are in theirfavor or not,” Ms. Goldstein says.

For the ass i s t ance o f a t ax-payer advocate, call toll-free at 1-877-777-4778. People who haveaccess to TTY/TDD equipment maycall 1-800-829-4059 and ask forProblem Resolution.

Taxpayer Advocates Working to Put Service First at the IRS

Taxpayers Have RightsThe Internal Revenue Service ischanging. And people at the IRS areworking hard to provide top qualityservice. In dealing with the IRS,taxpayers are entitled to fair treat-ment, privacy, and representation, inaddition to specific rights that applyin collect ion, examination, orappeals matters. Get the detailsabout taxpayer rights in the free IRSPublication 1, Your Rights as aTaxpayer, also available in Spanish.Call 1-800-829-3676 to order.

StandardDeduction forDependentsPeople who can be claimed as adependent by another get a higherstandard deduction for 1998. Thestandard deduction is the greater of$700 or the person’s earned incomeplus $250, up to the regular standarddeduction of $4,250 for a single per-son. This helps relieve many work-ing dependents with under $250 ofinvestment income of the need tofile a tax return or to have any taxwithheld from their pay.

When NamesChangeNames change for different reasons,such as marriage or divorce. Peopleshould notify the Social SecurityAdministration (SSA) when theirnames change because names andSocial Security numbers on taxreturns must match those the SSAhas on record. If they don’t match,federal tax refunds could be delayedor the Internal Revenue Service maycontact those affected to straightenout the mismatch.

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SSNs – Write OnThe IRS is listening to what taxpay-ers are saying. In response to tax-payers’ concerns about privacy, theIRS isn’t printing taxpayers’ SocialSecurity numbers anywhere in thetax instruction booklets. But the taxreturns must still have the SSNs, sotaxpayers should remember to writethem on before sending their returnsto the IRS.

Click onto IRS

People don’t have to be Internetsavvy to click onto the InternalRevenue Service’s Web site. Thesite provides easy access to IRS taxforms, publications and other help-ful information for individuals andbusinesses to browse or download.Click onto www.irs.ustreas.gov andcheck it out.

Don’t Pay theIRS This YearWhen the bottom line of the taxreturn says “Amount You Owe,”write a check, but make it payableto the United States Treasury, notthe Internal Revenue Service. Taxesfund the whole government—theydon’t just pay for the IRS. Enclosethe check in the envelope, but don’tstaple it to the return.

TeleFile, the IRS’ file-by-phoneoption, offers many people thequickest, easiest way to file a return.“TeleFile is easy. People who use itlove it, and become our best ambas-sadors for the program,” said BobBarr, IRS e-file executive. “Ninety-nine percent of last year’s usersintend to use it again.”

Last year, nearly 6 million peoplefiled their tax returns with a simple10-minute phone call to the IRS,and the number of users is expectedto increase again this year. And whynot?

“TeleFile is totally paperless.Just complete the TeleFile work-sheet in the tax booklet, call the toll-free number, and follow the easystep-by-step instructions. TeleFileinstantly calculates any taxes orrefund due. A customer servicenumber acts as a signature and aconfirmation number indicates wereceived your return. That’s all thereis to it,” explained Barr.

The IRS sends a special instruc-tion booklet to those people whomay be able to use TeleFile. Withthis booklet and a Touch-Tonephone, people can file their returnsat any time, 24 hours a day, 7 days aweek. “Only those who receive thebooklet can use TeleFile,” said Barr.

“Therefore, it’s important that peo-ple keep the booklet in a safe placeuntil they are ready to file.”

“Besides the benefits of quick,convenient filing, TeleFile userswill get their refunds in half the timethan if they filed a paper return—even faster if individuals choose tohave their refunds deposited directlyinto their bank accounts,” Barradded.

The TeleFile idea is expanding.Several states also offer their ownTeleFile program that lets residentsfile their state returns by phone.“This year, the IRS is testing a jointTeleFile option with two states,Kentucky and Indiana,” Barr noted.“Individuals who qualify will beable to file both their federal andstate returns with a single call.”What could be easier?

TeleFile: Your Easiest Way to FileTax BreaksAfter DisastersLosing personal or business propertydue to a fire, flood, hurricane, theftor other similar event is devastating.But many people can recover somedisaster losses through federalincome tax breaks.

People who suffer a casualty,loss or theft may be able to deductthe loss when they itemize deduc-tions on their tax returns. If the losshappens in an area declared a disas-ter area by the president, people canchoose to deduct the loss when theyfile their tax returns for the year ofthe loss, or amend their returns forthe year before the loss, whicheverprovides the better tax result.

If additional time is granted todisaster victims for the filing ofreturns and paying taxes, interestwill not be charged for that period.

For details, get free Publications547, Casualties, Disasters, and Thefts(Business and Nonbusiness), and1600 (1600SP in Spanish), DisasterLosses. Call 1-800-829-3676.

BoostEmployees’Take Home PayEven in good times, many employ-ees have a hard time making endsmeet. Employers can help many oftheir employees get more take homepay. How? With a tax benefit foremployees called the advanceearned income tax credit (advanceEITC). Advance EITC allowsemployers to add a portion of theiremployees’ earned income tax cred-its directly to their paychecks.

To get the advance EITC,employees must expect to earn lessthan $26,928 in 1999, expect tohave at least one qualifying child,complete Form W-5 and give itback to their employers. SeePublication 15, Employer’s TaxGuide (Circular E).

For more information onadvance EITC, or to download theform or publication, visit the IRSWeb site at www.irs.ustreas.gov. Orcall 1-800-829-3676 to get the freepublication and form.

Small businesses have an option tofile their Form 941 quarterly returnsusing a system that has proved highlypopular and successful among indi-vidual taxpayers. Each quarter, theInternal Revenue Service is mailingto millions of eligible small busi-nesses the 941TeleFile package.The package allows qualifying busi-nesses to file using a Touch-Tonetelephone.

The package sent by the IRScontains everything a business needsto successfully use 941TeleFile: the941TeleFile Tax Record, a paymentvoucher and a paper Form 941 forthose who do not meet the filingrequirements.

Instructions on the first page listthe qualifications. A business thatmeets these should complete the taxrecord using the instructions, thencall the TeleFile system using aTouch-Tone phone and the toll-freenumber listed. A recording guidesusers step by step through the phonecall and all the entries are repeatedso users can check their accuracy.As the user enters information,941TeleFile computes all the taxesand balances. At the end of thephone call, the system provides a

confirmation number that the userrecords on the space provided on the941TeleFile Tax Record. The taxrecord is the proof of filing and theofficial record of filing the returnand should be saved. The call takesabout 10 minutes; there is nothing tomail.

April 1998 was the first time that 941TeleFile was made avail-able to small businesses nationwide.The I R S r e c e i v e s m o r e t h a n300,000 returns per quarter through941TeleFile.

The 941TeleFile system willbegin accepting calls for the firstquarter of 1999 on April 1, 1999.The IRS TeleFile help desk is avail-able to assist and answer questionsusers have or to help them file. Thenumber is 1-901-546-2690 and isnot a toll-free call.

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The new year seems always to bringwith it tax law changes that affectbusiness owners filling out theirannual tax returns or that requireplanning for the next year. Things areno different in 1999. The changesaffect how self-employed people andfarmers handle income on 1998returns, and provisions that businessowners should be aware of for plan-ning in 1999.

On 1998 returns, the amount ofhealth insurance premiums deductibleby self-employed people increasesfrom 40 percent to 45 percent. From1999 through 2001, 60 percent willbe deductible.

Farmers can elect to computetheir 1998 income taxes by averaging

farm income over a three-year period.This became effective for tax yearsbeginning after December 31, 1997,and ending before January 1, 2001.

One of the more high-profilechanges takes effect after December31, 1998. Self-employed people andemployees may be able to take ahome office deduction if they use theoffice for administrative or manage-ment activities and meet basic tests.There must be no other fixed placewhere the person conducts substan-tial administrative or managementactivities and the office must be usedexclusively and regularly as a placeof business. An employee’s homeoffice deduction qualifies if the officeis used for the employer’s conve-

nience. One warning here: anemployee’s decision not to use suit-able space made available by theemployer can affect the deductibility.

The IRS will waive penalties onbusinesses that timely use paper fed-eral tax deposit coupons while con-verting to the Electronic Federal TaxPayment System (EFTPS). Thispenalty relief will run through June 30, 1999. It applies to all tax-payers required to enroll in EFTPSand deposit electronically startingJuly 1, 1997, or later. Two toll-freeEFTPS customer service numbers, 1-800-945-8400 and 1-800-555-4477,can answer questions.

Business Taxpayers Should Look for Tax Changes

Phone In Form 941B

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FamilyBusiness Estate Tax Family-owned small businesses getspecial treatment on their estatetaxes. For 1998, up to $675,000 ofthe value in qualified, family-ownedbusiness interests can be excludedfrom a decedent’s taxable estate.

To qualify for claiming the spe-cial tax treatment, the family-ownedbusiness interest must be more than50 percent of the decedent’s estateand the decedent’s family must ownat least 30 percent of the business. Abusiness meets the definition offamily owned if it is owned at least50 percent by one family, at least 70percent by two families, or at least90 percent by three families.

The exclusion will decrease inthe future as the value of the regularestate tax exclusion increases. Thetotal value of both exclusions willbe limited to $1.3 million.

On the road again? Business travel-ers should know what expenses aretax deductible and what receipts tohang on to.

There are three types of car tripsthat are tax deductible: travelingfrom one business location to another,making business trips out of townand staying overnight, and going totemporary business locations.

Keeping a car log is essential foreach business use. Taxpayers mustkeep complete and accurate mileagerecords, or the Internal RevenueService could disallow the deduction.

There are two methods forclaiming business car expenses—actual expenses or the standardmileage rate. With actual expenses,taxpayers can add all their car oper-ating expenses for the year—gas,oil, tires, repairs, license fees,garage rental, insurance and depre-ciation, subject to certain limitations—and then deduct the percentage ofthe total that was for business, basedon mileage records.

Instead of tracking actual carcosts, taxpayers can use the stan-dard mileage rate. Multiply thebusiness mileage by the standardrate of 32.5 cents per mile.

Travel expenses are ordinary andnecessary expenses while away fromhome on business. Taxpayers shouldkeep whatever documents they cangather to prove where they went,why they went there, how long theystayed and how much they spent. Ifthe travel includes some business and

some personal aspects, they shouldkeep clear records showing exactlyhow much is related to business.

Taxpayers should keep lodgingreceipts, including receipts forcleaning and laundry, telephonecharges and tips. They should alsokeep transportation receipts, such asairline, train or bus ticket stubs,travel agency receipts, rental car or taxi receipts. These should showthe dates and services involved.And, of course, keep meal receipts.Generally, taxpayers must keep alog of meal expenses andsave receipts of $75 or more.If they don’t want to keep track ofthe actual cost of meals, they can usea standard meal allowance, whichvaries depending on where they aretraveling in the United States.Taxpayers can generally claim only50 percent of the cost of meals andtips while traveling.

For more information about thebusiness use of a car or business travel expenses, call 1-800-829-3676and ask for Publication 463,Travel, Entertainment, Gift and CarExpenses, or download it from theIRS Web site at www.irs.ustreas.gov.

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Keeping a small business runningsmoothly is no easy task, and taxesonly complicate the job. The InternalRevenue Service publishes free taxinformation to help small businessowners and sole proprietors tackletheir tax obligations.

Publication 334, Tax Guide forSmall Business, provides generalinformation for sole proprietors whofile Schedule C or C-EZ. Publication1518 is a 12-month wall calendar forsmall businesses that provides taxtips ranging from starting a smallbusiness to planning for retirement. Italso shows the taxes due each month,

lists other free publications anddescribes ways to get tax and businessinformation from IRS and other agen-cies. Publication 910, Guide to FreeTax Services, describes year-roundtax services, tax season assistanceand frequently requested publicationsfor businesses and individuals. Twoother publications serve more special-ized audiences: Publication 225,Farmer’s Tax Guide, and Publication595, Tax Highlights for CommercialFishermen.

These and other IRS publicationsand forms are available by calling 1-800-829-3676.

Those who don’t want to wait forpublications through the mail andhave access to a personal computerwill f ind that the IRS Web site,www.irs.ustreas.gov, offers forms,publications and interactive assis-tance. Clicking on the “Tax Info forBusiness” section provides frequentlyasked tax questions and the latestinformation on selected business taxtopics. Business owners can browsepublications online or downloadforms they need. The IRS Web sitealso provides links to other sites ofinterest to businesses.

Free Tax Information for Small BusinessesOn Paper and On-line

On the Road for BusinessB

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Two million business taxpayershave enrolled in an electronic taxpayment system that allows themthe convenience of making theirfederal tax payments directly fromtheir homes or offices. TheElectronic Federal Tax PaymentSystem (EFTPS) eliminates papercoupons and checks and usesinstead telephones or personal com-puters to pay federal taxes.

Said by the IRS to be “the easi-est way to pay federal taxes,”EFTPS requires no special equip-ment. Payments by phone take lessthan five minutes. If a taxpayerwishes to use a personal computer,free, Windows-based software isavailable. Taxpayers can alsochoose to work through their finan-cial institutions. Based on specificdirection from the taxpayer, taxinformation and payment instruc-tions are processed through EFTPSto the government. No governmentagency or outside party has unau-thorized access to a taxpayer’saccount or company information.

EFTPS is an alternative offeredby the Treasury Department to pro-vide businesses with a simple, inte-

grated approach to managing theirtax dollars and information. Lastyear, the Treasury collected over $1 trillion through the system.Approximately 4,000 businesses areenrolling each week.

Two Treasury Department finan-cial agents, the First National Bankof Chicago and NationsBank, man-age the system. These banks enrollpeople in the system, provide cus-tomer service, direct payments tothe government’s account and pro-vide the tax payment information tothe IRS. Taxpayers do not have toopen accounts at these banks to par-ticipate. They can authorize theirown bank or the Treasury financialagent to initiate payments for them.A business that decides to use itsown bank should check with thebank for specific instructions, dead-lines and fees for using EFTPS.

Some businesses that use payrollcompanies may already be makingEFTPS payments. A business shouldask its payroll company if it hasalready enrolled the business inEFTPS and which taxes the companywill be paying for the business. TheIRS says that it is still a good ideafor a business to enroll in EFTPSseparately so there is flexibilityshould the business change payrollcompanies.

To use EFTPS, businesses mustfirst enroll. They can begin usingEFTPS as soon as they receive their payment instruction packet and personal identification number.Businesses that want an enroll-ment form or have questions cancall EFTPS Customer Service at 1-800-945-8400 or 1-800-555-4477.

Get Ready forYear 2000

On January 1, 2000, some computer-based systems will begin processinginformation as if it were January 1,1900. This is called the Year 2000problem or the “Y2K bug.” It maycause problems for businessesunless they act now.

This is not just a computer prob-lem. It could affect any equipmentthat uses a computer chip, as well asthe suppliers and business partnerssmall businesses rely on. Here arethree steps every business personshould take.

First, take a self-assessment test.People should check their comput-ers, as well as any electronic equip-ment that uses time-sensitiveembedded electronic chips. The U.S.Small Business Administration’sY2K Web site explains how to takethis test.

Second, take action now. Peopleshould fix any Y2K problems theyuncover, and test their results. Theycan ask their vendors for assistance.

Third, stay informed. Loggingon to various Internet Y2K sites isan excellent way to stay current, andthe SBA Web site is a good place tostart.

Businesses should ask theirbanks, building managers, suppli-ers, customers and others critical totheir business if they are Y2K com-pliant.

For more information, contactthe SBA at 1-800-U-ASK-SBA or atwww.sba.gov on the Internet.

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More Businesses Pay TaxesElectronically

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You’ve told us—when you

run into a tax question,

you want the answer now.

So we’re expanding our

hotline hours. Phone toll-

free 24 hours a day, seven

days a week to speak to an

IRS expert.

You’d rather go on-line?

We’ve loaded our Web site

with answers, including

the most Frequently Asked

Questions.

We also hold special

Problem Solving Days

when you can walk into a

local IRS office with your

tax problem and get help

on the spot. Schedules are

available on our Web site or

by toll-free hotline.

For tougher problems,

there’s the IRS Problem

Resolution Program. Your

personal advocate can be

assigned to work with you

to reach a solution.

And IRS e-file helps you

get your refund faster, by

filing electronically—day

or night. E-filers can even

pay taxes electronically.

Talk about fast and easy!

IRS toll-free hotline1-800-TAX-1040 Web sitewww.irs.ustreas.gov

At the IRSw e s o l v eproblems24hours

aday.

The Internal Revenue Service Working to put service first

7”x10” 65 linescreen

The Internal Revenue Service Working to put service first

You’ve told us—when you run into a

tax question, you want the answer now.

So we’re expanding our hotline hours.

You can phone toll-free 24 hours a day,

seven days a week to speak to an IRS

expert.

You’d rather go on-line? We’ve loaded

our Web site with answers, including the

most Frequently Asked Questions.

We also hold special Problem Solving

Days when you can walk into a local IRS

office with your tax problem and get

help on the spot. Schedules are available

on our Web site or by toll-free hotline.

For tougher problems, there’s the IRS

Problem Resolution Program.Your own

personal advocate can be assigned to

work with you to reach a solution.

And IRS e-file helps you get your

refund faster, by filing electronically—

day or night. E-filers can even pay taxes

electronically.

Talk about fast and easy!

IRS toll-free hotline 1-800-TAX-1040

Web site www.irs.ustreas.gov

At the IRSw e s o l v eproblems24hours

aday.

The Internal Revenue Service

Working to put service first

At the IRSw e s o l v eproblems24hours

aday.

You’ve told us—when you runinto a tax question, you wantthe answer now.

So we’re expanding our hot-l ine hours. Phone toll-free 24 hours a day, seven days aweek to speak to an IRS expert.

You’d rather go on-line? We’veloaded our IRS Web site withanswers, including the mostFrequently Asked Questions.

We also hold special ProblemSolving Days when you can walkinto a local IRS office with your taxproblem and get help on the spot.Schedules are available on ourWeb site or by toll-free hotline.

For tougher problems, there’sthe IRS Problem ResolutionProgram.Your personal advocatecan be assigned to work with youto reach a solution.

And IRS e-file helps you getyour refund faster, by filingelectronically—day or night.Now e-filers can even pay taxeselectronically.

Talk about fast and easy!

IRS toll-free hotline 1-800-TAX-1040 Web site www.irs.ustreas.gov

4 3/4”x10” 65 linescreen2 1/16”x10” 65 linescreen

You’ve told us—when you runinto a tax question, you wantthe answer now.

We’re expanding our hotlinehours. Phone toll-free 24 hoursa day, seven days a week tospeak to an IRS expert.

You’d rather go on-line? We’veloaded our IRS Web site withhelpful taxpayer information.

For tougher problems, there’sthe IRS Problem ResolutionProgram. A personal advocatecan be assigned to work withyou to reach a solution.

And IRS e-file helps youget your refund faster, filingelectronically, day or night—even pay taxes electronically.

Talk about fast and easy!

IRS toll-free hotline 1-800-TAX-1040 Web site www.irs.ustreas.gov

At the IRSw e s o l v eproblems24hours

aday.

The Internal Revenue Service Working to put service first

You’ve told us—when you runinto a tax question, you wantthe answer now.

So we’re expanding our hot-line hours. You can phone toll-free 24 hours a day, seven days aweek to speak to an IRS expert.

You’d rather go on-line? We’veloaded our IRS Web site withanswers, including the most

Frequently Asked Questions.We also hold special Problem

Solving Days when you can walkinto a local IRS officewith your taxproblem and get help on the spot.Schedules are available on ourWeb site or by toll-free hotline.

For tougher problems, there’sthe IRS Problem ResolutionProgram.Your personal advocatecan be assigned to work withyou to reach a solution.

And IRS e-file helps you getyour refund faster, by filingelectronically—day or night.Now e-filers can even pay taxeselectronically.

Talk about fast and easy!

IRS toll-free hotline 1-800-TAX-1040 Web site www.irs.ustreas.gov

The Internal Revenue Service

Working to put service first

At the IRSw e s o l v eproblems24hours

aday.

Call our hotline 24 hours a day,seven days a week. Or visit ourWeb site for answers.

For tougher problems, there’sour Problem Resolution Programwith your own personal advocate.

IRS toll-free hotline1-800-TAX-1040Web site www.irs.ustreas.gov

The Internal Revenue Service Working to put service first

7”x4 7/8” 65 linescreen

4 3/4”x4 3/4” 65 linescreen 2 1/16”x5” 65 linescreen

At the IRSw e s o l v eproblems24hours

aday.

Publication 1049B (Rev. 1/99)Catalog Number 62319Q

Working to putservice first