Taxpayer Relief Act of 1997: Highlights
Dateline: 10/17/97
Quick-links:
Summary of the Balanced Budget Amendment - H. J. Res. 1
Full text
of the Balanced Budget Amendment - H. J. Res.1
Both from the Library of Congress' Thomas Legislative Information Center
Internal Revenue Service Home Page
Well, it
took over two years of debate, but the Balanced Budget Amendment, including
a tax cut, is now law. What does it include? Who will benefit? Here's a brief
synopsis.
Clearly, the big winners in the Balanced Budget Tax Cut are members of the "middle class." This definitely includes me, and probably you, since Washington currently declares the middle class to be anyone from single parents with annual incomes of $12,000 to those making up to $110,000 a year.
While the primary goal of this bill is a U.S. Government that spends no more than it takes in -- a balanced budget -- by year 2002, taxpayers should also start to get some breaks.
Capital Gains
Reduces the top rate on profits from 28% to 20% for assets held at least
18 months, retroactive to May 7, 1997. Taxpayers now in the 15% bracket will
pay 10% tax.
Home Sales
For those those "married-filing-jointly" taxpayers, the law will exempt the
first $500,000 gained from the sale of a primary residence. Single folk can
exclude up to $250,000 in gains from taxation.
Estate Taxes
Over the next 10 years, the amount of inheritance exempted from Federal taxation
will increase to $1,000,000. The exemption for small businesses and farmers
jumps to $1,300,000 on 1/1/1998.
Retirement Savings
The act creates a tax-free IRA (individual retirement account) alternative.
The money you put in is taxed, but the account's earnings become tax-free
after five years and your reaching age 59 1/2. The yearly limit to the amount
you can put into your conventional IRA is increased, and penalty-free withdrawals
will be permitted for first-time home buyers or educational expenses.
Child Tax and Tuition Credit
Couples with annual incomes up to $110,000 will get a $400 per child tax
credit starting in 1998 and $500 per child in subsequent years. During the
first two years of college, you'll get a $1,500 tax credit, and $1,000 each
year thereafter.
Alternate Minimum Tax
The Alternative Minimum Tax (ATM) on small businesses is eliminated, while
eligibility for individuals is expanded. For some taxpayers, this will reduce
the benefits from the capital gains tax cut.
Education Savings Account
A new educational IRA is created. While contributions to them are non-deductible,
earnings are tax-free. A contribution of $500 towards each child's education
will be premitted, and money must be withdrawn before age 30.
As in all tax issues, taxpayers are urged to consult with a qualified consultant when considering the effect of this, or any other law on their individual, or business tax situation.
Of
course, you should also take a look at the
official interpretation
of these tax changes according to the IRS.
IRS Wins an Award?
In very loosely related story, the IRS, which has taken some rather bad press
lately, was awarded $100,000 by the Ford
Foundation on October 8 for their
TeleFile
system. The prize was one of several presented annually by the Ford
Foundation as part of the
Innovations in American
Government Program.
(Application for
1998 Awards)
TeleFile allows people with simple returns to complete their annual income tax filing with a 10-minute, toll-free phone call. Users can even have TeleFile deposit refunds directly to their bank accounts. Starting in early January, TeleFile is available 24 hours a day. Last year, almost 4.7 million taxpayers used TeleFile.
According to the IRS, the $100,000 prize (what's left after taxes, of course), to further inform the public about TeleFile.
Find Out More?
To learn more about this taxing topic, check out the selections in my
Bookstore.
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