The purpose of our newsletter is to highlight the current tax issues and discuss any tax concerns you may have. The information is divided into the following sections:

• Estimated Taxes
• Employee Income Caps for 2000
• 1999 Tax Rate Schedules
• Child Tax Credit
• Exemptions
• Itemized Deduction Limits
• (Schedule A Deductions)
• Education Credits
• Student Loan Interest
• Earned Income Credit Compliance
• Home Sales
• Stock Donations
• IRA Contributions

• IRA Distributions

• Foreign Gift Reporting
• Guide for Donated Items

Beginning March 1, 2000 you can pay part or all of your estimated tax by using a credit card (American Express, Mastercard or Discover card). To do this Call 1-888-2PAY-TAX (1-888-272-9829). You will be charged a convenience fee. You can look up the amount on the Internet at www.8882paytax.com.

Estimated tax due dates:

4/15/00 6/15/00

9/15/00 1/15/01

If you have withholding to cover your taxes for the year this is the best way to pay taxes. But if your have self-employed income, high interest/dividends, capital gains and cannot withhold enough to cover the taxes; then we need to calculate estimated tax payments. These payments will be based on prior year tax return.

General Rule to eliminate penalties your withholding and estimated taxes have to equal the smaller of the following:

90% of 1999 tax liability

100% of your 1998 tax liability – if your Adjusted Gross Income is less than $105,000 ($75,000 MFS)

105% of your 1998 tax liability – If your AGI is greater than $150,000 ($75,000 MFS)

Federal Social Security max:

Wage Base $76,200 - Rate 6.2%

Federal Medicare:

1.45% unlimited on all wages

State of Ca. State Disability Ins. max:

Wage Base $46,327. Rate .50%

Phase out at the following AGI:

Married filing jointly - $110,000

Single, Head of Household - $75,000

Married filing separately - $55,000

$2,750 for each exemption (you and your spouse) and dependent to be claimed on your 1999 tax return.

Phase out begins and ends as indicated in the following table:

Filing Status Adjusted Gross Income

Your itemized deductions are reduced by 3% of your AGI in excess of $126,600.

Example: Your AGI is $200,000. The Schedule A deductions would be reduced by $2,202.

Hope Credit – A $1500 (max) non-refundable credit per student per year for qualified tuition and fees paid for the first 2 years (freshman and sophomore years) of post secondary education in a degree or certificate program. The eligible expenses paid in 1999 for academic period starting after 12/31/98 and before 4/1/00. See phase out amounts below.

Lifetime Learning Credit – A $1,000 (max) non-refundable credit for qualified tuition and related expenses paid for all students enrolled in eligible educational institutions. Expenses must have been paid in 1999 for academic periods beginning after 12/31/98 and before 4/1/00.

Phase out modified adjusted gross income:

Married filing joint $80,000 - $100,000

All other filings $40,000 - $50,000

Interest on the first 60 months on a qualified education loan can be claimed as an adjustment to gross income. You should receive a statement by 2/1/00 indicating the amount of interest paid.

Anyone who fraudulently claims the EIC is ineligible to claim the credit for 10 years. If you erroneously claim the EIC (not fraud), the credit will be disallowed for 2 years. Additional form 8867 required for 1999.

Phase out for the eligible taxpayer will be:

If you meet the requirements, the amount of the exclusion will be:

Married filing Joint $500,000

Special Note: No deferred gain is allowed.

Donations of "qualified appreciated stock" to private foundations and charitable organizations will be valued at fair market value for stock held more than 12 months.

For stock held less than 12 months the deductions is limited to taxpayers basis.

Form 8283 must be completed and included with your tax return.

The maximum total for all IRA contributions (deductible or nondeductible) is $2,000.

A $2,000 IRA contribution may be deducted as an adjustment to your gross income under the following circumstances:

• Not an active participant in the employer plan but spouse participates and your adjusted gross income (AGI) is less than $150,000.
• Both you and your spouse are active participants in a company plan and your AGI is less than $51,000.
• You and/or your spouse do not participate in a company plan. Deduction is not limited by your AGI.
• A spouse who does not work outside the home will be able to make a deductible contribution even if working spouse participates in a pension plan and your AGI is less than $150,000.
• You and/or your spouse have not contributed to any other IRA – deductible or nondeductible. The total for all IRA contributions is limited to $2,000.

• ROTH IRA is nondeductible and has AGI limitations. You cannot contribute to a Roth IRA if your AGI exceeds the following amounts:

Single $110,000

Married $160,000

Single $110,000

Married $160,000

• TRADITIONAL IRA is nondeductible if you and your spouse both participate in an employer plan and your AGI exceeds $61,000.
• TRADITIONAL IRA is nondeductible if only one spouse participates in an employer plan and your AGI exceeds $160,000.

• Reach the age of 59 1/2 and start taking distributions from your traditional IRA.
• First-Time Qualified Home Buyer can withdraw $10,000 to pay qualified acquisitions costs on a principle residence. A married couple could qualify for a $20,000 exclusion - $10,000 from each spouse’s IRA account. The money must be used before the closing of the 120^th day after receipt. This is one time only opportunity.
• Higher Education Expenses can be paid with IRA withdrawal. The qualified expenses are tuition, books, supplies, equipment required, room & board.
• Medical Expenses paid with your IRA withdrawals must be in excess of 7.5% of Adjusted Gross Income. If this is the case, your withdrawal will not be subject to 10% penalty. This is tricky! You will not know if your expenses are in excess until the end of the tax year.
• Health Insurance Premiums paid by IRA distributions if the taxpayer has received unemployment compensation for at least 12 weeks.
• If you have taken a penalty free distribution, we need to make sure the year end form 1099R is coded correctly. Be sure the purpose of the withdrawal is stated clearly to the people handling the distribution of your IRA funds.

• On or after age 59 1/2
• Your are disabled
• To a beneficiary or your estate after your death.
• To pay certain qualified first-time homebuyer amounts

Special Note: Any distribution made within the 5-taxable-year period beginning with the first tax year for either a regular contribution or a conversion was made to a Roth IRA is not a qualified distribution.

Special Note: If you donate items of greater value, such as, a car, computer, boat, etc., to a Non-Profit Organization, School, Church, Charity, request a letter stating condition and value.

A professional appraisal is required for donated items of $5000 or more.