Welfare-to-Work Credit Extended; REITs, Self-Employed See Changes Also
Several provisions of the much-publicized Taxpayer Relief Act of 1997 have been modified for the 1999 filing season by a law signed by President Clinton in December.
According to Bruce Larsen, a tax partner at Ernst & Young’s Orange County office, federal provisions affecting employers and self-employed individuals that have been either extended or modified for the 1999 filing year include:
n The research and development tax credit
Originally scheduled to expire last June 30, this tax credit has been extended through June 30, 2004, although taxpayers must defer claiming the benefits of the credit for those qualifying expenses incurred after June 30, 1999. Generally, the R & D; credit allows businesses a nonrefundable tax credit equal to 20% of experimental and laboratory research and development costs that are in excess of R & D; costs that are considered typical and historical for that particular business.
n The work-opportunity tax credit and welfare-to-work credit
This provision allows certain employers to qualify for a tax credit if they hire individuals from up to eight targeted groups. Originally scheduled to expire last June 30, this credit has been extended through Dec. 31 of this year. The credit generally is equal to 40% of qualified first-year wages. Employers should consult their tax advisors for more details on this provision.
n Real Estate Investment Trusts (REITS)
The new law simplifies the rules governing real estate investment trusts generally by allowing an exception to the limitations on ownership for certain taxable REIT subsidiaries. REITs should consult their tax advisors for more details on this provision.
n Self-employed health deduction
If you’re self-employed, or are an “employee-owner,” meaning that you own 2% or more of the stock in an S corporation, you may deduct 60% of the premiums paid for health insurance coverage for yourself, your spouse and children. This is up from a 45% deduction that was allowed in the 1998 tax filing year.
n Exclusion for employer-provided educational assistance
Generally, educational expenditures such as tuition, books and supplies (whether or not the education leads to a degree) are deductible if the education maintained or improved job skills, or met express requirements of the employer. The exclusion for employer-provided educational assistance has been extended through Dec. 31 of this year.
Larsen noted that taxpayers should consult their tax advisors before implementing these and other tax strategies.
