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Leslie Bonacum
Neil Allen

Year End Gives Taxpayers Something To Celebrate: CCH Outlines Tax Law Changes To Take Effect January 1

(RIVERWOODS, ILL., December 20, 2000) – As taxpayers ring in the new year, they will benefit in 2001, in small ways, from a number of adjustments built into the nation’s tax revenue laws, according to CCH INCORPORATED (CCH), a leading provider of tax and business law information and software.

Standard Deductions – in 2001, the standard deduction amounts rise to: $7,600 (marrieds filing jointly and surviving spouse), $3,800 (marrieds filing separately) $4,550 (single) and $6,650 (head of household). The standard deduction for dependents claimed on another’s return rises $50 to $750.

Exemptions – Each personal exemption will be worth $2,900 on 2001 returns, up from $2,800 on 2000 returns.

Social Security Adjustments for Inflation – The maximum amount of wages subject to Social Security old age, survivors’ and disability withholding increases from $76,200 to $80,400.

Social Security Income Limits – In 2001, people under age 65 can earn up to $10,680 before seeing a reduction in their Social Security benefits. If 2001 is the year in which a person reaches age 65, he or she may earn up to $2,084 per month until reaching age 65 without a reduction in benefits. Once taxpayers turn 65, they can earn any amount without a reduction in benefits.

Student Loan InterestThe deductible amount of education interest expense increases from $2,000 in 2000 to $2,500 in 2001.

Mileage Moves Up – The standard per-mile rate for business use of an automobile is 34.5 cents per mile for 2001, up from 32.5 cents per mile in 2000. The rate for medical use rises from 10 cents per mile to 12 cents per mile, as does the rate used in computing moving expense. Charitable use remains at 14 cents per mile.

IRA Phaseouts – In 2001, the ability for those covered by a qualified plan to make a deductible contribution to an IRA will begin to phase out at $33,000 in adjusted gross income and end at $43,000 for single filers. For marrieds filing jointly, the phaseout range is $53,000 to $63,000.

Retirement Plan Contributions – The maximum that can be contributed to a 401(k) plan in 2001 remains at $10,500. The limit on elective contributions for SIMPLE plans increases to $6,500 in 2001, while the limit for contributions to a government-sponsored 457 plan increases to $8,500.

Expense Election – The amount that can be "expensed" rather than depreciated under Section 179 of the Internal Revenue Code rises to $24,000 in 2001.

Foreign Earned Income Exclusion – The exclusion on foreign earned income rises to $78,000 for 2001.

Estate Tax – The unified credit equivalent for 2001 will be $675,000, the same as in 2000. The next scheduled increase will be in 2002, when it goes to $700,000.

More Expensive ‘Safe Harbor’ – Taxpayers filing jointly with adjusted gross incomes of more than $150,000 ($75,000 or more for marrieds filing separately) who make estimated tax payments for tax year 2001 will have to pay at least 110 percent of their 2000 taxes in order to have a ‘safe harbor’ from IRS penalties in the event that their estimated taxes are less than what they actually owe for 2001. For taxpayers with adjusted gross incomes of $150,000 or less, the safe harbor figure remains 100 percent of prior year’s taxes.

Congressional New-Year’s Presents

In its very last days, the 106th Congress gave taxpayers two more reasons to celebrate with new laws that are expected to be approved by the President and enacted:

Medical Savings AccountsDue to expire at the end of 2000, the provisions allowing taxpayers to establish Medical Savings Accounts (MSAs) have been extended to the end of 2002.

Installment Sales Congress reinstated the installment method of accounting for accrual method taxpayers who sell their businesses with payments scheduled over a number of years. The installment method had been abolished at the end of 1999, both as a way of funding other tax provisions and as a way of closing a perceived "loophole." But installment sales are a frequent method of selling small businesses, in many cases to fund the owner’s retirement. Requiring the owner to pay tax on the entire amount of the transaction in the first year of the sale often made such deals impractical. The change is retroactive.


CCH INCORPORATED, headquartered in Riverwoods, Ill., was founded in 1913 and has served more than four generations of business professionals and their clients. The company produces more than 700 electronic and print products for the tax, legal, securities, human resources, health care and small business markets. CCH is a wholly owned subsidiary of Wolters Kluwer North America. The CCH web site can be accessed at The Federal and State Tax group web site can be accessed at

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