THE WRIGHT LETTER
*** SPECIAL TAX EDITION ***
Tax Relief
The Economic Growth and Tax Relief Reconciliation Act of 2001 was recently signed in to law by President Bush. It is a $1.35 trillion tax cut containing over 440 Internal Revenue Code changes. It is projected to reduce annual revenues by 1.3% of the gross national product by 2006. As you can see by the graph, most of provisions do not go into effect right away. Depending on who is in power in Washington D.C. , it is possible that some of the tax cuts may be reversed before they even go into effect. – So keep an eye on your Congressmen & Senators !!!
Relief Benefit Rate Reduction Marriage Penalty Relief Child Tax Credit Estate Tax Cutbacks Estate Tax Repeal Limited Carryover Basis Itemized Cutback Repeal College Tuition Deduction Education IRA Changes Student Loan Interest Additional IRA Contrib. IRA Catchups 401 (k) Limits ‘01 ‘02
Timing of Tax Cuts
‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10
2001 Tax Cuts
CASH BACK RATES REDUCED $600 CHILD TAX CREDIT ESTATE TAX CUTBACKS CASH BACK Single Head of Household Married Filing Joint
RATES REDUCED
The income tax rates have been reduced for the first time in over 20 years !! The current rates of 15, 28, 31, 36 and 39 have been replaced with rates of 10, 15, 25, 33 and 35 percent. 2001-2007 the tax rates have been reduced to 10% on the first dollars earned.
Single Head of Household Married $ 6,000 $10,000 $12,000
So What Does All This Mean?
In 2001, a single taxpayer earning $25,000 will pay $567 less in taxes. Head of household earning $45,000 will pay $468 less in taxes. Married filing joint taxpayers will pay approximately $ 459 less in taxes assuming an income of $60,000.
$300 $500 $600
STUDENT LOAN INTEREST INCREASED
Starting in 2002, you can make more money before your student loan interest is not deductible. If you are single the phase-out begins at $50,000 and the student loan interest is completely non-deductible once your adjusted gross income is $65,000. The range for Married Filing Joint is $100,000 – 130,000. The income phase-outs will be adjusted annually for inflation. Also, the 60-month limitation is repealed. So, for those of you out of college for awhile may be able to deduct your student loan interest in 2002.
AFTER 2007
Single Head of Household Married $ 7,000 $12,000 $14,000
CHILD TAX CREDIT INCREASED
The child tax credit will increase gradually from the $500 maximum allowed in 2000 to $1,000 in 2010. Remember, in order to qualify for the credit, the child must be under age 17 and a dependent on the taxpayers’ return. TAX YR 2001-2004 2005-2008 2009 2010 & after AMOUNT $ 600 $ 700 $ 800 $1,000
More rate reductions for the upper income brackets. July 2001-2003
28% tax rate reduced to 27% 31% tax rate reduced to 30% 36% tax rate reduced to 35% 39.6% tax rate reduced to 38.6%
2004-2005
28% tax rate reduced to 26% 31% tax rate reduced to 29% 36% tax rate reduced to 34% 39.6% tax rate reduced to 37.6%
Year 2006 and after:
28% tax rate reduced to 25% 31% tax rate reduced to 28% 36% tax rate reduced to 33% 39.6% tax rate reduced to 35%
IRA & RETIREMENT CHANGES
IRA’s CONTRIBUTION LIMITS INCREASED IRA contributions will increase from $2,000 to $5,000 over the following schedule: YRS. 2002 – 2004 $3,000 YRS. 2005 – 2007 YRS 2008 $4,000 $5,000
EDUCATION IRA’s Maximum Annual Contribution per beneficiary increased from $500 to $2,000 beginning in 2002. Remember contributions to this IRA are not deductible, but if the money is used for education the contributions and income earned on the contributions are distributed from the IRA tax free.
Gramm-Leach-Bliley Act requires CPA’s to publish their confidentiality policies. A formal policy is enclosed. Remember, I am forbidden to give any confidential information to anyone unless required by Federal, State or Local law. If you have any questions, please contact me. NEW email address: lcwrightcpa@socket.net
401(k), 403(b), SEP Plans Maximum annual limits increased to $11,000 in 2002. After 2002 the deferral limit increase $1,000 per year until year 2006 when the maximum is $15,000
Lisa C. Wright, CPA publishes THE WRIGHT LETTER to provide you with small pieces of tax information. If you have questions regarding your particular situation, please give me a call at (573) 474-4961 or (573) 864-0433 lcwrightcpa@socket.net