Subject: New Tax Laws

Dear Clients, Colleagues and Friends,

The start of the new millennium brings a number of new tax changes that may affect your 2000 taxes. Some of these changes are the result of cost-of-living adjustments; others are scheduled increases fixed by law. Some of these changes may affect you, while others may affect members of your family.

You may want to adjust your withholding or estimated taxes as soon as possible in view of these changes. You may also want to take this time to review your estate plans.

Change number 1: Inflation adjustments to tax brackets, the standard deduction, personal exemptions and other tax items mean that you can earn more without being pushed into a higher tax bracket. For example, the standard deduction amount increased to $2,800 (up from $2,750 in 1999). Also, the 39.6% tax bracket does not start to apply to taxpayers (other than those who are married filing separately) until taxable income reaches $288,350 (up from $283,150). Thus, about $5,000 more of income will be taxed at the 36% bracket instead of the 39.6% bracket (a tax savings of about $180).

Change number 2: Social Security recipients can earn more without any loss of benefits. In 2000, those age 65 through 69 can earn $17,000 a year (up from $15,500) before benefits will be reduced.

Change number 3: The first-year expensing deduction increases to $20,000 (up from $19,000 in 1999). This means that small business owners and employees who buy equipment can deduct a greater amount of equipment purchases instead of having to depreciate the cost over a number of years.

Change number 4: The exemption amount for federal estate and gift tax purposes increases to $675,000 (up from $650,000 in 1999). This means that a greater amount of property can be passed free of any transfer taxes.

Change number 5: The interest deduction limitation on student loans increases to $2,000 (up from $1,500 in 1999). This is above-the-line deduction that can be claimed whether or not other deductions are itemized.

Change number 6: The modified adjusted gross income limits for active participants in qualified plans to make deductible IRA contributions increases. For singles, a full deduction can be claimed by those with MAGI under $32,000 (up from $31,000 in 1999). A partial deduction can be claimed for those with MAGI between $32,000 and $42,000. No deduction can be claimed once MAGI reaches $42,000 (up from $41,000 in 1999). For married couples, the full deduction limit is $52,000 (up from $51,000 in 1999). The phase-out range is between $52,000 and $62,000. No deduction can be claimed once MAGI reaches $62,000 (up from $61,000 in 1999).

We’d be happy to discuss how these changes can affect your personal tax situation and what strategies you might want to consider.

Very truly yours,

Rex L. Crandell

Rex L. Crandell

RLC:kao/e:taxsummaryltr012K.doc