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Tax Relief Extension Act of 1999

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By Roy Lewis

In 1999, Congress overwhelmingly approved legislation that will have an impact on your tax returns. The legislation extended many expired (or expiring) tax provisions until December 31, 2001. Let's take a few minutes to see the impact of this law.

Alternative Minimum Tax (AMT) for non-refundable credits: The rules that allowed various non-refundable credits to reduce both regular and AMT taxes was set to expire on December 31, 1999. What good would these credits be if they only reduced your regular taxes and not your AMT taxes? For many, no good whatsoever. Congress appears to have understood the problem and did something about it. Thanks guys (and gals)!

Because of this legislation, your non-refundable credits (including the child credit, the dependent care credit, credit for the elderly, adoption credit, the home mortgage credit, and the Hope and Lifetime Learning education credits) reduces both your regular tax and your AMT tax. This is true for tax years 1999, 2000, and 2001. We'll have to sweat out similar extender provisions in 2001, but the credit relief is certain until then.

Research Credit: The legislation extends the research credit through June 30, 2004. This is a business provision that won't impact many of you. (Maybe it's something you can use to impress your friends with your tax knowledge or even win a bar bet.) This credit can have a significant impact on a number of companies... even companies that you might hold in your portfolio. So, this credit being extended might help you indirectly (via stock appreciation). And, if one (or more) of your holdings takes significant advantage of the research credits, you might want to keep the June 30, 2004 expiration date in the back of your mind. Nevertheless, we'll not spend any real time on this issue.

Employer Provided Educational Assistance: The legislation extends the present exclusion for employer-provided educational assistance through December 31, 2001. The provision applies to courses beginning after May 31, 2000 and before January 1, 2002. The education assistance portion of the IRS code has been used, abused, discarded, resurrected, and tinkered with so much over the last five years, that many employees (and employers) don't even know where they stand anymore. If this is something that has meaning to you, make sure you check out the current provisions with the Human Resources and/or Benefits team at your place of employment. They should be able to provide you with the current rules and how you might benefit from them.

Rum Excise Tax: The legislation includes a temporary increase in the excise tax on rum coming from Puerto Rico and the U.S. Virgin Islands from July 1, 1999 through December 31, 2001. I not only bring this up because I fear the cost of my next Cuba Libre might increase, but also to point out that tax legislation deals with many, many issues.

Washington, D.C. Homebuyer Credit: If you are considering purchasing a home in the Washington, D.C. area, you should know that the special Washington, D.C. first-time homebuyer credit has been extended to cover residences purchased on or before December 31, 2001.

Estimated Tax Safe Harbor Provisions: As you should be aware, if you have enough taxes withheld in the current year (either via withholding and/or qualified estimated tax payments), you can have a very large balance due to Uncle Sammy on April 15th and avoid any underestimated tax penalties on that large balance due. This is true if you can qualify under the "safe harbor" provisions. Well, you should know that the safe harbor provisions have been made a bit more stringent with this legislation.

If your adjusted gross income is more than $150,000 ($75,000 for married filing separate), your safe harbor percentage provisions have been increased. For withholding/estimated tax payments made in 2000, the safe harbor percentage is 108.6% (up from 106%). For 2001, the safe harbor percentage has been increased to 110% (up from 106%).

There are a number of other provisions in the legislation. They could impact any number of people, but are not really worth dealing with here. If you would like to understand more about the legislation, visit the Library of Congress Thomas website and check out H.R. 1180. You'll want to pay particular attention to Title V of the bill. As always, if you have any questions on any of the bill provisions, feel free to leave your question in the Tax Strategies discussion board.

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