JANE BRYANT QUINN

Several big, new tax breaks take effect this year. They don't go on the 1997 returns that you're filing now. But you can start making use of them, to increase your spendable income.

Do it by checking which tax cuts you qualify for and how much they're likely to save you. Then reduce your tax withholding to match. You'll effectively get an instant tax cut rather than having to wait a year. Here's what's new for 1998:

? The tax credit for children. Many parents will be able to take $400 off their taxes for each dependent child under 17. Single parents get the full credit on adjusted gross incomes up to $75,000; for married couples filing jointly, it's $110,000. Above that, the credit phases out.

? Education loan interest. Students and parents who took out loans to finance higher education can deduct up to $1,000 in interest payments in 1998. You get this special tax break even if you take the standard deduction. The write-off applies to each of your first five years of interest payments, even on loans you started repaying before the law passed. If you started loan repayments in 1996, for example, you get three years of interest deductions.

Singles qualify for this tax break on incomes up to $40,000 (phasing out at $55,000) and marrieds on joint incomes up to $60,000 (phasing out at $75,000).

? Tax credits for higher education. For middle-income families, colleges and trade schools suddenly got cheaper. There are two different credits.

1) During the first two years of school, you can deduct up to $1,500 from your taxes, per student per year. This is called the Hope Scholarship credit. In many cities, it will make community college virtually free.

2) Starting July 1, there's a Lifetime Learning Credit, worth up to $1,000 ($2,000 starting in 2003). You can use it in each of as many years as you want, for everything from graduate school to single courses for acquiring or improving your job skills. The $1,000 covers all of a family's students collectively ? you don't get a separate credit for each. Singles qualify with incomes up to $40,000, phasing out at $50,000; for marrieds filing jointly, it's $80,000, phasing out at $100,000. These tax credits will probably reduce the amount of student aid you get. Even so, you come out ahead.

? The education IRA. You may be able to save up to $500 annually after tax for each child under 18, then use that account tax-free to help pay for higher education. This is separate from the $2,000 you can put into other IRA accounts.

Singles are eligible with incomes up to $95,000 and marrieds, up to $150,000. Above that, this tax break phases out.

Warning: You can't use either the Hope or the Lifetime Learning Credit in a year you take money out of an education IRA. This may dim your interest. The tax credits will be worth more than the IRA, unless you start it for a young child and contribute faithfully every year.

? The Roth Individual Retirement Account. Roths are being advertised everywhere, by banks, mutual funds and brokerage firms. Workers can deposit up to $2,000 after tax ($4,000 if they're married filing jointly). Roth earnings are entirely tax-free if you hold for at least five years and withdraw the money in either of the following circumstances:

(1) You're over 59 and a half; or.

(2) You're using up to $10,000 in earnings to buy your first home.

You can take out your own contribution, tax-free, whenever you want. Singles qualify for a Roth on incomes up to $95,000 and married couples filing jointly, up to $150,000. Above those income levels, the contribution rapidly phases out.

? Traditional tax-deductible IRAs. They're for employees who (1) aren't covered by a company retirement plan; (2) may be covered by a spouse's plan but have no plan of their own (that's new this year); (3) have a company plan but only a modest income.

The income limits for the full $2,000 contribution in 1998: $30,000 if you're single and $50,000 if married filing jointly. Tax-deductible IRAs are generally better than Roths for people whose tax brackets will decline sharply in retirement.

? IRA withdrawals. Starting this year, you no longer pay the 10 percent tax penalty on early withdrawals if you take the money for higher education or take up to $10,000 to buy your first home

Capital gains

The new tax law slashes rates on capital gains, and profits on most sales of homes will no longer be taxed at all. But no good deed goes unpunished. This year, it takes 36 lines on the Schedule D to figure out what your capital-gains tax is going to be.

You earn a capital gain when you sell an investment for a profit or when your mutual fund takes a cash profit for the year. Short-term capital gains are taxed as ordinary income. Long-term gains get a lower rate.

Before the law passed, you had to hold an investment for more than 12 months to get a long-term capital gain. Under the new law, you have to hold for more than 18 months. On gains taxed under the old law, you pay 15 percent in the lowest bracket and 28 percent in the higher brackets. On gains taxed under the new law, you pay just 10 percent in the lowest bracket and 20 percent in the higher brackets.

The rate stays at 28 percent for gains on collectibles, such as art and antiques. But it drops to 25 percent on gains from real-estate depreciation.

The special problem this year is that you may have both old-law and new-law capital gains.

The new rates apply to investments sold in 1997 from May 7 through July 28, provided you held them more than 12 months. They also apply to investments sold after July 28, provided you held them more than 18 months. Otherwise, you're taxed at the old, higher rates.

You can probably figure the tax by hand, if you're reporting gains on just a couple of investments. Simply follow the step-by-step calculation on Schedule D.

If you have lots of gains and losses ? some of them short-term, some of them long-term ? and maybe some losses carried over from previous years, get a tax software program. Or hand over the mess to an accountant.

Even people whose only capital gain is from mutual fund distributions now have to file a Schedule D. Previously, you could report your gain on the 1040 form.

Syndicated columnist Jane Bryant Quinn can be reached in care of the Washington Post Writers Group, 1150 15th St., Washington D.C. 20071-9200.

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