Csara
01-08-2003, 09:48 PM
Taken From: MSN Money--Taxes (http://moneycentral.msn.com/articles/tax/basics/10602.asp)
The Basics
10 new and improved tax breaks
It’s tax season again -- and time to wonder if you’ll ever get a break. The answer: yes, indeed. Changes resulting from the 2001 tax law took effect in 2002 and can save you money now.
By Jeff Schnepper
Free income tax filing
This one may put me out of business! The IRS has entered into an agreement with a consortium of private companies to provide access to commercial tax preparation software and e-filing services. The cost of this service to you -- zero!
Visit the IRS Web site (you'll find the links at left under 'Related Web sites') to find out how to have your return done, and filed, for free.
The IRS estimates that as many as 78 million taxpayers will qualify for this service. That’s about 60% of the estimated 130 million people who will file a Form 1040 in the 2003 filing season.
Educator deduction
If you’re a teacher, aid, instructor, counselor or principal working in kindergarten through grade 12, you’ve just received a tax bonus!
If you bought books, supplies, computer equipment, or supplementary materials, their cost would normally have been allowed as a miscellaneous itemized deduction, subject to the 2% floor. That means you would have to itemize your deductions and have sufficient miscellaneous expenses that exceed 2% of your income before you’d get any tax benefit from those purchases.
Thanks to the Job Creation and Worker Assistance Act of 2002, up to $250 of such classroom material can now be deducted above the line! That means that you get the deduction regardless of whether you itemize.
Tuition and fee deduction
If your adjusted gross income doesn’t exceed $65,000 ($130,000 on a joint return), you may qualify for an above the line deduction of as much as $3,000 for qualified tuition and fees you paid for yourself, your spouse, and your dependents.
You can’t get this deduction if you’re claimed as a dependent on another return or if you claim an education credit for the same student. So always compare the tax savings from the deduction (the actual deduction multiplied by your marginal tax bracket) to any education credit, which is a dollar-for-dollar reduction in your tax.
Student-loan interest deduction
The 60-month limit on interest payments no longer applies and the restriction on voluntary payments of interest has been lifted. You now get the deduction, no matter how long it takes you to pay off the loan.
Earnings from qualified state tuition programs
These programs, also known as Section 529 Plans, used to provide tax-deferred growth for college expenses. Qualified distributions from these plans are no longer tax-deferred -- they’re now tax-free.
Coverdell education savings accounts
You used to be limited to a $500 contribution, and qualified distributions applied only to college expenses.
The limit’s been boosted to $2,000, and now distributions for college, elementary and secondary school expenses qualify for tax-free treatment.
Retirement savings credit
You can receive a credit of as much as 50% of the amount you save, up to a $1,000 credit on a $2,000 retirement contribution. That’s $1,000 more in your pocket!
To qualify for this credit, which ranges between 10% and 50%, your adjusted gross income must be less than $25,000 ($37,500 for Head of Household and $50,000 for Joint returns).
IRA deduction expanded
If you qualify, you and your spouse can now put 50% more in your IRA than you could last year. The 2002 limit is $3,000, up from $2,000 last year.
If you’re covered by a retirement plan, the income limits for an IRA deduction have increased to $44,000, or to $64,000 on a joint return.
Catch-up provisions on retirement accounts
If you’re age 50 or older, you can make additional retirement plan contributions. For an IRA, the additional amount is $500, bringing the maximum deductible amount to $3,500.
For 401(k)s, 403(b) annuity plans, SEPs or Section 457 Plans, the additional amount is $1,000 ($2,000 for 2003). The additional amount under a SIMPLE Plan is $500 (doubling to $1,000 for 2003).
Schedule B exclusion
Schedule B is where you list all your interest and dividend income. In a successful attempt to actually simplify your return, you no longer have to list the individual payers if the total of interest income is $1,500 or less, or if your dividend total is $1,500 or less. (But you do have to list the total and pay the taxes due.)
And here’s a bonus: if you’re self-employed, you can deduct 70% of your health insurance expenses for 2002. But I hope you paid your December bill in January. You delayed the deduction, but in 2003 the deductible amount increases to 100%.
The Basics
10 new and improved tax breaks
It’s tax season again -- and time to wonder if you’ll ever get a break. The answer: yes, indeed. Changes resulting from the 2001 tax law took effect in 2002 and can save you money now.
By Jeff Schnepper
Free income tax filing
This one may put me out of business! The IRS has entered into an agreement with a consortium of private companies to provide access to commercial tax preparation software and e-filing services. The cost of this service to you -- zero!
Visit the IRS Web site (you'll find the links at left under 'Related Web sites') to find out how to have your return done, and filed, for free.
The IRS estimates that as many as 78 million taxpayers will qualify for this service. That’s about 60% of the estimated 130 million people who will file a Form 1040 in the 2003 filing season.
Educator deduction
If you’re a teacher, aid, instructor, counselor or principal working in kindergarten through grade 12, you’ve just received a tax bonus!
If you bought books, supplies, computer equipment, or supplementary materials, their cost would normally have been allowed as a miscellaneous itemized deduction, subject to the 2% floor. That means you would have to itemize your deductions and have sufficient miscellaneous expenses that exceed 2% of your income before you’d get any tax benefit from those purchases.
Thanks to the Job Creation and Worker Assistance Act of 2002, up to $250 of such classroom material can now be deducted above the line! That means that you get the deduction regardless of whether you itemize.
Tuition and fee deduction
If your adjusted gross income doesn’t exceed $65,000 ($130,000 on a joint return), you may qualify for an above the line deduction of as much as $3,000 for qualified tuition and fees you paid for yourself, your spouse, and your dependents.
You can’t get this deduction if you’re claimed as a dependent on another return or if you claim an education credit for the same student. So always compare the tax savings from the deduction (the actual deduction multiplied by your marginal tax bracket) to any education credit, which is a dollar-for-dollar reduction in your tax.
Student-loan interest deduction
The 60-month limit on interest payments no longer applies and the restriction on voluntary payments of interest has been lifted. You now get the deduction, no matter how long it takes you to pay off the loan.
Earnings from qualified state tuition programs
These programs, also known as Section 529 Plans, used to provide tax-deferred growth for college expenses. Qualified distributions from these plans are no longer tax-deferred -- they’re now tax-free.
Coverdell education savings accounts
You used to be limited to a $500 contribution, and qualified distributions applied only to college expenses.
The limit’s been boosted to $2,000, and now distributions for college, elementary and secondary school expenses qualify for tax-free treatment.
Retirement savings credit
You can receive a credit of as much as 50% of the amount you save, up to a $1,000 credit on a $2,000 retirement contribution. That’s $1,000 more in your pocket!
To qualify for this credit, which ranges between 10% and 50%, your adjusted gross income must be less than $25,000 ($37,500 for Head of Household and $50,000 for Joint returns).
IRA deduction expanded
If you qualify, you and your spouse can now put 50% more in your IRA than you could last year. The 2002 limit is $3,000, up from $2,000 last year.
If you’re covered by a retirement plan, the income limits for an IRA deduction have increased to $44,000, or to $64,000 on a joint return.
Catch-up provisions on retirement accounts
If you’re age 50 or older, you can make additional retirement plan contributions. For an IRA, the additional amount is $500, bringing the maximum deductible amount to $3,500.
For 401(k)s, 403(b) annuity plans, SEPs or Section 457 Plans, the additional amount is $1,000 ($2,000 for 2003). The additional amount under a SIMPLE Plan is $500 (doubling to $1,000 for 2003).
Schedule B exclusion
Schedule B is where you list all your interest and dividend income. In a successful attempt to actually simplify your return, you no longer have to list the individual payers if the total of interest income is $1,500 or less, or if your dividend total is $1,500 or less. (But you do have to list the total and pay the taxes due.)
And here’s a bonus: if you’re self-employed, you can deduct 70% of your health insurance expenses for 2002. But I hope you paid your December bill in January. You delayed the deduction, but in 2003 the deductible amount increases to 100%.