Monday, April 03, 2000

Tax breaks target workers

Self-employed can save on insurance, equipment bought

Gannett News Service

        Millions of self-employed workers stand to save hundreds of dollars in taxes this filing season thanks to two tax breaks expanded by Congress.

        One will allow many self-employed workers to deduct more of their health insurance premiums. The other break will permit small businesses to write off more of their business equipment purchases.

        But both self-employed workers and employees will be disappointed by last year's IRS decision to lower the fixed mileage allowance for job-related car use.

        • Self-employed health insurance deduction: Several million self-employed workers will be able to write off more of their health insurance premiums on 1999 income tax returns without having to qualify for the itemized medical deduction.

        Congress increased the special self-employed health insurance deduction to allow eligible business owners to deduct 60 percent of their health insurance premiums on the front of Form 1040, up from 45 percent on 1998 returns.

        The special deduction can be claimed for any month when you were not eligible to participate in a subsidized health plan of another employer, including your spouse's employer.

        • Increased write-offs for business equipment: Business equipment, including computers, fax machines or office furniture, can be written off many ways. But the sim plest and most lucrative way is the “first-year expensing” method.

        Congress enacted this special depreciation method to give smaller businesses a simple and fast way to write off business equipment.

        Instead of having to depreciate the equipment's cost during a period of years, the expensing method allows you to fully write off up to $19,000 of 1999's equipment purchases on your 1999 income tax return. That is up from $18,500 in 1998.

        • Car deductions: Workers who used their car for job-related travel last year are likely to end up with a smaller deduction for their car use on 1999 returns.

        For the first time ever, the IRS lowered its standard mileage rate for business use of an automobile. Following declines in gasoline prices, the mileage rate was lowered last April 1 from 32.5 cents to 31 cents.

        When writing off business use of a car, taxpayers generally have the op tion of deducting actual expenses or claiming the IRS mileage rate plus parking and tolls. Using the IRS mileage allowance is much simpler. But totaling up actual expenses may provide a bigger deduction — particularly with the lower mileage rate in effect for most of 1999.

        The rate drop was only temporary. The IRS raised the mileage rate back up to 32.5 cents per mile effective Jan. 1, 2000.


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