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Changes few between 1998, 1999

But you'd better hope you kept good records if you've been trading a lot in the stock market.


© St. Petersburg Times, published February 20, 2000

If your financial life hasn't changed much, you can expect your 1999 tax return to look a lot like the one you filed for 1998. It might even be easier to prepare since it's basically a rerun, with few significant changes in the tax laws.

But if you were among the millions of American who were enticed by the booming stock market to take up day trading or cash in a chunk of your investment portfolio, you could be in for a shock.

"I can see a big problem coming if people did not keep good records," said Gilberto J. Hernandez, a partner in the Tampa CPA firm ValienteHernandez. "This is going to be a major headache for a lot of people."

When you sell a stock or mutual fund, it's crucial to know how much you paid when you bought it -- whether you made your investment in 1999 or 1959. Day traders have to match purchases and sales on what may be hundreds or even thousands of transactions. Long-term investors get the pain of digging through old records, trying to track reinvested dividends or figure out how to account for stock splits and spinoffs.

Collecting the data is difficult enough. Once it is gathered, filling out Schedule D, the form to report such capital gains, is no picnic either.

But there is good news for mutual fund shareholders, many of whom were left confused last year by Schedule D. If you are a fund shareholder, you no longer have to fill out Schedule D if fund distributions are your only capital gains. This year the distributions can be reported directly on Form 1040 -- after first filling out a worksheet.

Although the tax code is as complicated as ever, most of the changes that apply to 1999 returns amount to tweaking -- adjusting numbers to the taxpayer's benefit. For example:

This year's returns also offer new relief to select groups, such as workers with a home office and smokers trying to kick the habit

Many people who never qualified for a home-office deduction in the past will be able to claim it. A home office must still be your principal place of business, but the new rules make it easier to meet that requirement. If you have no other set place to conduct administrative or management activities, the home office qualifies even if your main moneymaking activities, such as sales or service, are performed elsewhere.

"It used to be you had to see your customers at your place of business" to qualify, said Kent Barry, senior tax manager at KPMG Peat Marwick in Jacksonville.

The home office must be used exclusively for business, and if you are an employee, it must be for your employer's convenience rather than yours.

Unfortunately, the benefits of writing off a portion of your homeowner's insurance, utilities and other expenses could be offset when you sell a home used partly for business. You could be hit with capital gains tax if you claimed a home office more than three of the five years preceding the sale. You also could be hit with a tax on any depreciation deductions you took.

On the anti-tobacco front, programs to help people stop smoking have become deductible medical expenses -- if you have total medical expenses exceeding 7.5 percent of adjusted gross income. Non-prescription nicotine-laced gum doesn't qualify.

Although relatively little is new this tax year, a lot of people are just discovering changes that went into effect over the past two years.

Families sending a child to college for the first time in 1999 are now getting their first crack at the Hope Scholarship Credit, worth up to $1,500, which became available on 1998 returns.

Home sellers taking advantage of the booming real estate market are just now learning about the terrific tax break on the sale of a home, which went into effect in 1997. Instead of worrying about buying a more expensive home to shelter their gains, they can walk away with the proceeds tax-free. This benefit protects gains of up to $250,000 for a single person or $500,000 for a married couple and can be used as often as every two years.

"It's had a tremendous impact," accountant Hernandez said.

Because the tax law has so many wrinkles, it often pays to consult a professional preparer or do research on your own if your financial circumstances have changed significantly. A birth, death, marriage or retirement in the family has income tax implications. So does moving to take a new job or receiving a retirement fund payout.

If you cannot get your taxes done on time, you can file for an automatic four-month extension -- but you still are required to pay what you owe by April 17. If you aren't sure how much that is, make a good-faith estimate. You'll owe interest on any deficiency plus a penalty if the deficiency is more than 10 percent of what you owe.

What you don't want to do is just let your taxes slide.

CPA Kevin Sullivan of Sullivan & Co. in St. Petersburg said his worst nightmare is a client who has not filed returns for several years and comes in for help straightening things out. It's a particular problem if the person has income from self-employment and has not kept good records separating business and personal expenses.

"Most of these people are very good people," Sullivan said. "They keep thinking in their minds that they'll get to this project, and the next thing you know they're three years down. These become big projects. We don't want to do these any more."

-- Information from Times wire services was used in this report.

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