Guidance for Special Types
of Businesses
Special Rules for Businesses in Certain Industries/Farming
Important Changes for 2000 and 2001, Affecting Farmers
ALERT!
Problem: Due to a processing error, IRS improperly denied
the Earned Income Tax Credit (EITC) to some taxpayers with investment
income exceeding $2,350. IRS sent erroneous error notices in response
to certain 1999 returns with a combination of Form
4797 Sales of Business Property and EITC.
Who's affected: A relatively small number of taxpayers who filed returns
claiming EITC and who sold investment property including culled cows, farming
equipment and other business assets in 1999.
What IRS is doing about the problem: Service Centers have
taken corrective steps to prevent improper EITC denials involving
Form 4797. IRS employees who process returns have been directed
to manually compute taxpayers' investment income to ensure these
EITC claims will not be rejected. In addition, taxpayers and tax
practitioners are being alerted to EITC problems.
What affected taxpayers should do: Taxpayers who used Form
4797 and subsequently received notice that their investment income
disqualified them from EITC should notify the contact person or
office listed on the error notice to correct the problem. If the
taxpayer otherwise qualifies for EITC, the IRS assistor may be able
to make an on-line adjustment to the taxpayer's account and issue
a notice that the correction has been made and a refund is being
issued. Individuals can also contact the IRS toll-free help line
at 1-800-829-1040 and say they are calling about disqualified income
on Form 4797 for EITC purposes.
Farm income averaging. You can now use
a negative taxable income amount for any base year to figure your
tax on Schedule
J (Form 1040). See Farm
Income Averaging (Publication 225).
Important Changes for 2000
The following items highlight a number of administrative
and tax law changes for 2000.
They are discussed in more detail throughout the publication. More information
on these
and other changes can be found in Publication 553, Highlights of 2001 Tax
Changes.
Depreciation limits on business cars. The total
section 179 deduction and depreciation
you can take on a car you use in your business and first place in service in
2000 is
$3,060. Special rules apply to certain clean-fuel vehicles. See
chapter
8.
Earned income credit. The maximum earned income
credit has been increased for
2000. To claim the credit, you must have earned income (including net earnings
from
self-employment) and modified adjusted gross income of less than $31,152 and
meet
certain other requirements. For more information, including what counts as
earned in-come,
see
Publication 596, Earned Income Credit (EIC).
Farm income averaging. You may be able to use a
negative taxable income amount for
a base year when figuring your tax on
Schedule J (Form 1040). See
chapter 4.
Paid preparer authorization. Beginning with your
return for 2000, you can check a box and
authorize the IRS to discuss your tax return with the paid preparer who signed
it. If you
check the "Yes" box in the signature area of your return, the IRS can
call your paid
preparer to answer any questions that may arise during the processing of your
return.
Also, you are authorizing your paid preparer to perform certain actions. See
your income
tax package for details.
Section 179 deduction. For 2000, the total cost you
can elect to deduct under section
179 of the Internal Revenue Code is increased to $20,000. See
chapter 8.
Self-employed health insurance deduction. The part
of your self-employed
health insurance premiums you can deduct as an adjustment to income is 60% for
2000.
See
chapter 5.
Standard mileage rate. The standard mile-age rate
for the cost of operating your car,
van, pickup, or panel truck in 2000 is 32 1 /2 cents a mile for all business
miles. See
chapter 5.
Tax rates and maximum net earnings for self-employment
tax. The maximum net
self-employment earnings subject to the social security part (12.4%) of the
self-employment
tax increased to $76,200 for 2000. There is no maximum limit on earnings subject
to the Medicare part (2.9%). See chapter
15.
Marginal production of oil and gas. The suspension
of the taxable income limit on
percentage depletion from the marginal production of oil and natural gas that
was
scheduled to expire for tax years beginning after 1999 has been extended to tax
years
beginning before 2002. For more information on marginal production, see section
613A(c)
of the Internal Revenue Code.
Photographs of missing children. The Internal
Revenue Service is a proud partner
with the National Center for Missing and Exploited Children. Photographs of
missing
children selected by the Center may appear in this publication on pages that
would other-wise
be blank. You can help bring these children home by looking at the photographs
and calling 1 -800 -THE -LOST (1 -800 -843 -5678) if you recognize a
child.
Important Changes for 2001
The following items highlight a number of administrative
and tax law changes for 2001.
More information on these and other changes can be found in
Publication 553, Highlights of 2000 Tax Changes.
Standard mileage rate. The standard mile-age rate
for the cost of operating your car,
van, pickup, or panel truck in 2001 is 34 1 /2 cents a mile for all business
miles. See
chapter 5.
Electronic deposits of taxes. You must
use the Electronic Federal Tax Payment System
(EFTPS) to make electronic deposits of all depository tax liabilities
you incur after 2000
if you meet either of the following conditions.
- You had to make electronic deposits in 2000.
- You deposited more than $200,000 in federal
depository taxes in 1999.
If you do not meet these conditions, electronic
deposits are voluntary. See
chapter 16.
Section 179 deduction. For 2001, the total cost you
can elect to deduct under section
179 of the Internal Revenue Code is increased to $24,000. See
chapter 8.
Maximum net earnings for self-employment tax. The
maximum net self-employment
earnings subject to the social security part of the self-employment tax for 2001
will
be published in
Publications 533. There is no maximum limit on earnings subject
to the Medicare part.
Wage limits for social security and Medicare taxes. The
maximum wages subject to
the social security tax for 2001 will be published in
Publication 51, Circular A, Agricultural Employer's Tax Guide.
There is no limit on wages subject to the Medicare tax.
Important References:
Publication
225
Farmer's Tax Guide
Publication
553
Highlights of Tax Changes
