Some years, taxpayers almost need to take a college course to keep up with changes in tax law. This is not one of those years.
But don't throw away those highlighters and crib notes just yet. Even though taxpayers don't have to grapple with any sweeping new tax legislation this year, previously passed laws are still taking effect, courts have made new rulings and the IRS has issued additional guidelines.
Taxpayers could find themselves tested by new, little-known restrictions on tax credits, retirement accounts and other areas of tax law.
For example, the Internal Revenue Service has cracked down on transfers between IRAs and Roth IRAs that once benefited some taxpayers.
Meanwhile, lump sum distributions from retirement plans can no longer be spread over five years, and two tax credits for foster parents have been tightened.
There's also some good news. Popular tax breaks have been extended, and contributing to certain retirement plans is easier.
Tax brackets, standard deductions and exemptions have also been increased by a few bucks, although low inflation has preempted any dramatic changes.
Here's a quick review of what's new for 2000:
* The standard deduction rises to $4,400 for singles ($100 more than last year) and $7,350 for marrieds (a $150 increase). The value of exemptions rises $50 to $2,800.
* The IRS is no longer accepting the 1040PC computer-generated paper return because electronic filing is now widely available using home computers.
* The IRS has reduced the failure-to-pay penalty for taxpayers who have set up an installment payment plan with the agency. The usual 0.5% per month penalty is cut in half to 0.25%, for an annual interest rate of about 3%. Taxpayers who owe more than they can pay should consider filling out Form 9465, Installment Agreement Request.
* If your only investment income was capital gains distributions from a mutual fund and you don't otherwise need to file a 1040, you may be able to use the simpler Form 1040A. For details, see Publication 550.
* You can now check a box on your tax form that allows the IRS to deal directly with your tax preparer should questions arise about your return. This can help your preparer solve simple problems more quickly.
* Credit card companies and other businesses that lend money to consumers are now required to report to the IRS when they cancel or forgive debt. The canceled or forgiven amount is typically considered taxable income to the consumer.
* Speaking of credit cards, a second company has been approved to process credit card payments from taxpayers who owe the IRS money. Both Official Payments Corp. and PhoneCharge Inc. charge convenience fees of about 2.5% of the tax payment.
* The child-tax credit and the earned-income credit are restricted for certain foster families.
In the past, foster parents could take these credits if the foster child lived with them for the entire year and the foster parents cared for the child as though he or she were their own.
Now, the child must be placed with the foster parent by an authorized placement agency, or be a brother, sister, stepbrother or stepsister, or descendant of such a relative.
* Personal tax credits, including the child-tax credit, are not reduced under alternative minimum tax rules.
People who are subject to the AMT--a parallel tax system that affects certain deductions and credits--would normally lose the ability to take full advantage of certain personal nonrefundable credits, such as the $500 child-tax credit, the adoption credit, the dependent-care credit, education credits and the credit for the elderly and disabled, among others.
Congress extended a law that preserved these credits for people subject to AMT for 2000 and 2001.
* Income limits rise for earned income credit. Low-income families with at least two qualifying children can now have incomes of as much as $31,152 and still qualify for this refundable credit. Last year the limit was $30,580.
For Retirement Savers
* Income limits rise for deductible IRA contributions. In 2000, you can take a full deduction if your adjusted gross income is under $52,000 for married filers or $32,000 for single filers. A partial deduction is available until income reaches $62,000 for married filers and $42,000 for singles. As in past years, taxpayers can deduct an IRA contribution regardless of income if they are not covered by a workplace retirement plan.
* New restrictions have been imposed on transfers between IRAs and Roth IRAs.
In past years, some taxpayers converted regular IRAs to Roth IRAs, undid the conversions in what was known as a recharacterization and then did the conversions all over again. Many who did this were hoping to take advantage of lower stock prices to reduce the amount of tax they paid, because amounts converted to Roth IRAs generally incur regular income taxes, said Jim Seidel, editor for tax information firm RIA.