(MONEY Magazine) – It's no small thing to face down a 1040 and a blizzard of documents, from canceled checks and restaurant receipts to 1099 dividend slips. And just when you think you've nailed down a strategy, the folks in Washington change the rules. Sure, this latest overhaul--the so-called Economic Growth and Tax Relief Reconciliation Act--brought rebate checks for many of us. But what other considerations come with the new law? How different is it going to be to file intelligently?

MONEY went to some of the country's top tax experts to find out. We asked them the questions that are most likely to affect readers like you, and we sought out strategies to help you minimize next year's taxes while avoiding the pitfalls. Because no matter what Washington may do, taxes will always be there--and they're not getting any simpler.

--We've heard a lot about the new tax laws. But how different will filing really be this year?

Tom Pudner, manager, McLean, Va. personal financial planning practice, KPMG: Much of the new tax law complicates tax planning, but the returns themselves aren't going to be a lot more complicated. The biggest changes are the new tax brackets and the reduction in income tax rates. From a preparation standpoint, you can still look at a table and find what your tax is. But from a planning standpoint, there's a lot you can do. These new brackets and lower rates are fully phased in by 2006, then go up again in 2011. So, for example, you can try to time the exercise of nonqualified stock options for later years, if possible, because that's when you may be in a lower tax bracket. [For more ideas, see "Save on Next year's Taxes Now," page 96.]

Mark Luscombe, principal analyst, federal and state tax group, CCH: The only new line on the 1040 is line 47, which is for the credit that represents the new 10% tax bracket. For 2001, the new rate was handled as a credit, which many people received as a rebate check.

Evan Snapper, senior manager, personal financial counseling, Ernst & Young: Early filers have been making mistakes filling in line 47. If you got a rebate check for the maximum amount--either $600 or $300--leave the line blank. If you didn't get a check, or believe that you were entitled to more than you received, complete the Rate Reduction Credit Worksheet in the 1040 instruction booklet to determine what you're entitled to. Then put that amount on line 47. One thing to be aware of, though, is that if you received a rebate check, it was an advance refund. So if you're due a refund for 2001, you'll get $600 or $300 less. If you owe money, you're going to owe $600 or $300 more. That's the catch.

--Many people refinanced their mortgages this year. What's deductible? What about home-equity loans?

LUSCOMBE: Basically, when refinancing a mortgage, what you have is an ability to deduct interest. So the question that usually arises is, "What counts as interest? If I pay points on the refinancing, is that interest and can I deduct it?" When you're refinancing, points have to be deducted over the term of the loan. That's different from an initial mortgage, where typically the points are characterized as prepaid interest that you can deduct up front.

PUDNER: The way interest rates have been coming down, many people are refinancing for a second time. In that case, any points that you have been amortizing on an old refinancing can be deducted when you refinance again and pay off that old loan. So if you had taken out a loan back in 1999 and started amortizing points, and then during 2001 you refinanced, for that old loan you'd get to write off the rest of the points. Also, if you refinance to pay for improvements to your primary residence, the points attributable to the refurbishing would be deductible this year.

Let's say you took out $150,000 on your new loan in 2001, and you're using half of that to pay off your old loan but the rest to build an addition on your house, and you're paying three points on origination. The 1 1/2 points allocated to building costs would be deductible on this return. The 1 1/2 points for refinancing that old loan will be deductible over time.

SNAPPER: If you refinance for more than the debt that's left, and don't put the money toward home improvement, that's not a refinance for tax purposes. It's considered a home-equity loan. You can only deduct interest on up to $100,000 of home-equity debt.

John Battaglia, tax director, private client advisors, Deloitte & Touche: When you refinance, there may be some interest you had to pay from the date of the last mortgage payment to the closing date of the refinance. When you get your mortgage interest statement from your bank--it's called a 1098--make sure that this interest is on it. Sometimes this interest is omitted by mistake.

--One confusing change is the number of people who will be subject to the alternative minimum tax. How do I know if I'm likely to be subject to the AMT, and what does that mean?

PUDNER: The AMT is basically a parallel tax system. You compute your regular tax, which is enough work by itself. Then on top of that, you run a separate calculation to compute your AMT and pay the higher of the two numbers.

Kathy Burlison, manager, tax operations field training, H&R Block: The way the AMT works is that you calculate your income without certain deductions or credits you'd otherwise be allowed to take. That's called your alternative minimum taxable income (AMTI). For instance, you don't deduct your dependents, any state and local taxes you paid, medical expenses or other miscellaneous itemized deductions.

BATTAGLIA: There are approximately 28 of these items--they're called adjustments and preferences--that are different for AMT. After you calculate your AMTI, you apply the two AMT rates: 26% for the first $175,000 and 28% for any balance.

SNAPPER: With the AMT you can deduct charitable donations and mortgage interest, a couple of other things, but that's pretty much it. So the lower AMT rates may end up costing people with a lot of deductions and a higher ordinary tax rate a lot more, especially if you have high state and local taxes.

LUSCOMBE: There are two things in the new legislation that could make more people subject to the AMT. One is that while regular tax rates were reduced, the AMT rates stayed the same, and you have to pay the higher amount. Another is that the amount of AMTI that is exempt from this tax--$37,750 for single filers and $49,000 for joint filers--falls by a few thousand after 2004. So it's more important than ever to work through the AMT calculation. A preparer can do it for you, and so can tax software.

PUDNER: In 2001 an estimated 1.4 million taxpayers will be subject to the AMT. But without a change in the laws, it's projected that by the year 2010, 35.5 million taxpayers will be subject to the AMT. People who earn more money certainly tend to get hit by it because the full AMT exemption gradually phases out--for joint taxpayers, starting at $150,000 of AMTI; for single taxpayers, starting at $112,500.

BURLISON: If you're stuck with the AMT for 2001, there's not much you can do at this point. But it will serve as a heads-up for this year. Look at the kinds of items that kicked you into AMT for 2001--whether it's because you live in a high-tax state or because you have lots of personal exemptions. Then plan your strategy if you can.

For example, if you had a lot of miscellaneous itemized deductions, you might choose your expenses differently for 2002. Say you're a businessperson who runs up a lot of unreimbursed travel and entertainment expenses. You may have justified that, thinking they're deductible, but now you're in AMT territory and they're not. One way out is to deduct only part of your expenses, just enough to keep you out of the AMT zone, and swallow the rest. For 2002, you might tone down the spending. Another option is to keep a running tally of your unreimbursed expenses on tax software and review it quarterly, to make sure you're not going to trigger the AMT.

If you have an older child who has income of his own, and you're losing the benefit of that dependent exemption through the AMT, you might "emancipate" that child by having him provide more than half of his own support and file his own tax return. That way, the child will get the exemption. Each parent could put up to $11,000 into savings for the child as a gift. Just double-check that your health insurance will still cover your child once he or she is no longer your dependent.

BATTAGLIA: Some people paying the AMT will be eligible for a credit to reduce future taxes. You can get the credit if you've got something called deferral adjustments and preferences--like if you exercise incentive stock options. Personal exemptions, standard deductions, state and local taxes or real estate taxes aren't deferral adjustments or preferences, so you can't get the credit. If you're in an AMT situation, it's very important that you talk to a specialist who has substantial experience with the AMT--probably someone who has a lot of high-income clients. There are many things you can do to help yourself, if you know what you're doing.

--The long-term capital-gains rate is supposed to drop from 20% to 18% for assets held for five years, starting this year. But to get the lower rate, people will need to do a "deemed sale and repurchase election" on 2001 returns. Who should do this--and how?

BURLISON: This is a one-time-only move that applies only to assets or property purchased before Jan. 1, 2001, and for which you want the five-year holding period to potentially apply. It's worth considering if you have an asset that you think you'll hold for at least five more years, and you can use its gain in value to offset losses in other investments. Say you had investments whose net capital losses in 2001 were $13,000. You could write off $3,000 against ordinary income and carry the other $10,000 into future years. Or you could elect to take an asset you currently hold that on Jan. 2, 2001 had gone up in value and do a deemed sale. You'd be able to get an increase in the cost basis of that asset of up to $10,000 (matching your loss) at no current tax cost.

If you're selling something that's readily tradable, such as stock or an open-ended mutual fund, you need to look up the closing market price on Jan. 2, 2001--and that will be treated as your sales price. The cost you paid for the shares would be your normal cost basis. In addition to reporting the deemed sale on Schedule D, you attach a statement to your return saying you're making an election under Section 311 of the Taxpayer Relief Act of 1997, and you list the assets to which this applies. It's a good idea to keep a copy of this return until you sell all the assets for which you made the election. When you do sell after five years or more, your new cost basis will be that fair market value as of Jan. 2, 2001.

But there are some good reasons not to take these steps. If your assets are real estate or collectibles, you'll have to get an appraisal, which can be costly. Also, if you can't match a loss to the deemed sale, you'll be prepaying taxes that you'd otherwise not be required to pay, with the expectation of a mere two-point difference in your taxes five years down the road. The economics frequently won't make sense.

PUDNER: If you've got an asset that dropped in value by the beginning of 2001, you typically wouldn't want to make the election because you can't deduct losses in a deemed sale. Instead, you might sell the asset and purchase something else. That way you could write off your loss next year. The new asset will qualify for the five-year rates without making this deemed sale election.

LUSCOMBE: If you're in the 10% or 15% tax brackets, you don't need to fill out any forms for a deemed sale. Your long-term capital-gains rate drops from 10% to 8%, and your five-year holding period can start anytime, even before 2001.

--The value of my Roth IRA has dropped significantly, but I owe taxes from when I converted it in 2001. How do I recharacterize it back to a traditional IRA?

BATTAGLIA: Let's say you rolled your regular IRA over to a Roth last year and it was worth $50,000. Now it's worth only $25,000. That's when you want to do a recharacterization. Basically, that means telling the IRA administrator that you're going to make the Roth back into a regular IRA in a trustee-to-trustee transfer. This must be done by Oct. 15 of this year.

SNAPPER: I wouldn't wait that long. You never want to wait until the last minute for anything like this.

PUDNER: When you take the money out of the Roth, it's not taxable anymore. You can recharacterize it as a traditional IRA, then wait 30 days and put it back in a Roth. You'll end up owing less tax, plus you'll wait an extra year to pay.

--Many people got laid off this year, and they've spent a lot on job searches. What can they deduct?

SNAPPER: Job searches are deductible, but they're subject to the 2% miscellaneous itemized deduction rule. You can't deduct anything until your total miscellaneous itemized deductions are more than 2% of your adjusted gross income (AGI). Once you're over that hump, any money you spend to make money is deductible. For a job search, that includes things like buying magazines with want ads, hiring someone to help prepare a resume and purchasing the stationery that you printed the resume and cover letters on. Mailing. Traveling to and from job interviews. If you hired a job coach who charged you a fee. But buying a new suit for an interview is not deductible because you can use the suit personally. If you have to buy a uniform for a job, that's deductible.

LUSCOMBE: Quite often people assume that unemployment benefits are not taxable, and that is not the case. From the IRS' point of view, unemployment benefits are income, just like the check you used to get when you were employed. And typically no taxes are withheld from unemployment benefits. So you may be in a situation where not only do you owe taxes, you also should have paid estimated tax. But it's also possible for someone to have paid enough withholding when he or she was still employed to exceed his or her total tax liability for the year and still be entitled to a refund, despite some unemployment benefits.

PUDNER: With job-search deductions, there are also restrictions on what kind of job you can look for. Basically, you've got to stick close to your current line of business. For example, if you're working as a human resources director in a pharmaceutical company and wind up in human resources in another industry, say, electronics, you still qualify for the deduction because you're in the same position. You can go from being an employee to being temporarily self-employed and qualify for the deduction, like a C.P.A. who is laid off from a firm and works independently while searching for a new position. But if you're a teacher and you want go into public relations, you wouldn't qualify for a job-search deduction.

BURLISON: If you have to relocate, the good news about moving expenses is that they're deductible even if you don't itemize. The bad news is that the deduction is limited to the cost of moving yourself, your family and your belongings. House hunting and temporary housing costs don't count. You couldn't deduct this last year either. There's also a distance requirement: The distance from your old home to your new job has to be more than 50 miles farther than the distance from your old home to your old job. So if you were commuting 30 miles, your new job would have to be at least 80 miles away for you to deduct a move.

If you move to another state, in most cases the state that is now your residence will give you a credit for at least part of the taxes paid in your old state. You'll need tax forms for both states. If you're filing your federal return electronically, you can e-file one state return. The federal e-filing backbone is not robust enough to allow for two state returns. If I had a choice about which state to file electronically, I'd choose the one with the refund, assuming there was a refund. Otherwise, it really wouldn't make much difference.

BATTAGLIA: To deduct moving expenses, you have to work as a full-time employee at the new location for at least 39 weeks in the first 12 months following your move. And if your moving expenses were reimbursed by your employer, they are not deductible. If you were reimbursed over and above what's deductible--for closing costs on a house, for instance--you'll have to pay tax on that.

--Are health insurance premiums deductible for people who've been laid off?

PUDNER: If you're not self-employed, health insurance expenses, including COBRA premiums, are lumped together with other medical expenses. They're deductible only if they exceed 7.5% of your AGI. That's a pretty big threshold for a lot of people. But if you're self-employed, you can deduct 60% of your health insurance premiums; the deduction is not subject to any income limitations and you don't have to itemize. Starting in 2002, the deduction rises to 70%. If the remainder--40% for 2001, 30% for 2002--exceeds 7.5% of your AGI, you can deduct that too.

--What about people who owe huge taxes from when they exercised stock options but the shares have since tanked? Is there anything they can do?

PUDNER: First of all, there are two types of options. The most common ones are nonqualified stock options. With those, the tax you owe is based on the difference between your strike price and the fair market value of the stock the day you exercised. But if you sell later at a loss, you may get some of that tax back, because you can offset any capital gains plus $3,000 of ordinary income against losses. The problem is that your options were taxed at the ordinary income rate, which is higher than the long-term capital-gains rate. So that may not be a great result. But if you've got losses you can't use this year, you can carry them forward until they're used up.

LUSCOMBE: Incentive stock options would not have been subject to tax if you exercised and held the stock, unless you're in an AMT situation, and then they'd be treated basically like nonqualified stock options. If the shares lost value in 2001 and you didn't sell the stock, there's nothing you can do. You would have had to sell in the same calendar year you exercised the ISO to "undo" the AMT.

PUDNER: That's the trap a lot of people have fallen into. They exercised ISOs and waited to sell the stock until the next year, and then the market came down a lot. It might not be quite as big a problem for 2001 as it was in 2000. At that point, we were seeing a lot of the dotcom-type companies whose stocks went down significantly. But there's some of that this year.

--There are lots of new education savings in the new tax law. What will save the most on taxes?

BURLISON: The student-loan interest deduction rose to $2,500 for 2001, from $2,000. That's one really big change.

SNAPPER: You can deduct interest only on student loans incurred in the last 60 months, but starting in 2002, that 60-month window goes away. So if you still have student loans, you've been out of school awhile and you fall within the income limits, you may be able to deduct interest in 2002.

PUDNER: The biggest development is with the vehicles that you can use to save for education. The main two are the 529 state plans and the former Education IRAs, which are now known as Coverdell Education Savings Accounts.

LUSCOMBE: The ESA contribution limit goes up from $500 to $2,000 per student in 2002. And you can use them not only for higher education but for elementary and secondary education too. And starting in 2002, you can contribute to them until April 15 of the following year. But there's an income limit for contributors: up to $220,000 for joint filers and $110,000 for single filers. But since you don't have to be a parent to open an account, you can give the money to a relative whose income qualifies and let him or her make the contribution.

BATTAGLIA: Distributions from the 529 are completely tax-free beginning in 2002, provided they're used for qualified higher education expenses. Distributions from Coverdell accounts have always been tax-free.