Well, here we are. Another tax year has come and gone and come again. Yes, it's time to act like an adult, buck up, take care of your responsibilities, and do the things in life that you don't particularly like doing. That's the definition of being an adult. Isn't it?
Be that as it may, our task of filing our income taxes might go a little easier if we didn't have a new learning curve each year. I know, this borders on a complaint, which borders on whining, but let's just say it's a statement of fact. And if you think it's complicated for the individual, you should see what we get each year on tax law changes!
Yes, there are new rules and regulations each year. The house of taxes seems to be always under construction. So, each year we have to brush up on what's new and adjust our strategies. We thought we'd help you out a little bit here with a "laundry list" of the tax regulation changes that are most likely to affect you. Here they are:
Lower Income Tax Rates
Starting in 2002, even lower income tax rates apply to everyone (this is good news). The tax rates drop one-half percent for the four rates higher than 15% and we see the new 10% rate for the first time in 2002. The new rates are 10%, 15%, 27%, 30%, 35%, and 38.6%.
Student Loan Deduction
Here's some more good news: There's been a dramatic increase in the income eligibility limits for deducting the payments of student loans. So, if you still have student loans out, they can help reduce your tax liability.
New College Tax Deduction
Here are some more breaks for the higher education crowd. There's a new deduction (2001) that applies to taxpayers attending college or who are paying for their childrens college education. This deduction can be claimed instead of the Hope or Lifetime tuition credits. Check income limits for deductibility.
Hope & Lifetime Tuition Credit
If you take either of these two credits, check your eligibility. There has been a slight increase in the income eligibility limits for both of these credits.
Employer Assisted Tuition
Good news for employers. Employer-provided assistance for graduate level education is also now tax-exempt.
Education Savings Accounts
Education IRAs, now called Coverdell Education Savings Accounts, have major changes for 2002. There are now higher contribution limits, higher income-eligibility limits and higher withdrawals allowed for pre-college expenses.
State Sponsored College Savings Plans/Section 529 Plans
College Savings Plans or Section 529 Plans are now a tax-free. Very cool (as the student would say): A tax-free way to save and pay for your childs college education.
Adoption Tax Credit
For those considering adoption: The qualification requirements have changed in your favor and the increases in allowable expenses have really helped make the adoption process easier on the pocketbook.
Earned Income Tax Credit
The qualification requirements have been relaxed some. And, the credit amount has been increased for lower-income taxpayers.
New Retirement Savings Credit
This credit was established for lower and middle-income workers to encourage retirement savings. You only have four years, though, from 2002 to 2006.
Higher IRA Contribution Limits
The maximum IRA contribution limit has been raised. It's gone from $2,000 to $3,000 per person starting in 2002. Taxpayers who are at least 50 before the end of 2002 can increase their contribution by an additional $500 per person. The income eligibility limits for traditional IRAs are slightly higher for taxpayers who are covered by an employer-sponsored plan.
Increased contribution limits for 401(k)s and other retirement plans, as well as self-employed retirement plans are ineffect for 2002. Employees in 401(k) and other employer retirement plans will earn rights to matching contributions more quickly.
Self-employed Health Insurance
A greater portion of the health insurance premiums will be deductible for those who are self-employed.
Automobile Mileage Deduction
The standard mileage rate deduction for business use, medical transportation and job-related moves has been increased. You get more for your miles.
Gift Tax Exclusion
Not in the gift-giving mood? This should help a little. The annual amount of gift tax exclusion is raised to $11,000 for 2002.
The gradual phase-out of federal estate tax begins in 2002. Also for 2002, there's been an increase in the estate tax exemption and a reduction in the highest estate tax rates.
A long list, you say? Well, we're compelled to respond with: Compared to what? We've gone through reams and reams of information on the above items and many, many more. We've already gotten through our learning curve on all this. So, if you need more detailed information on how all this applies to your situation specifically, give us a call. We're here to help.