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Year End Tax Planning 2001

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The Economic Growth and Tax Relief Reconciliation Act of 2001”

    A number of changes in the news are included in the Tax Relief Act of 2001. These changes will take effect over a period of 10 years, so a credit or deduction that you were counting on may not be available until a later year. For example, the new low-rate bracket of 10% for the first $10000 for head of household, $12000 for married filing joint, and $6000 for single, tax will not become effective until 2002; the standard deduction married penalty until 2005; capital gains rates in later years, and numerous others over a period of years.  A few changes are as follows:

    The Child Tax for 2001 increases to $600 for a dependent child under the age of 17. New for 2001, this credit may be refundable to the extent of 10% of your earned income in excess of $10,000.

    If you were married this year and changed your name, make sure your Social Security number on file with the Social Security Administration matches what you report on your income tax return. If it doesn’t the IRS will reject your return and delay processing. Also, to qualify for the Earned Income Credit you must have a valid Social Security number for you and your dependents.

    If you had a child born in 2001 (even as late as December 31) you can claim this child as an exemption- however, you will need to file for the child’s Social Security number and include it on your tax return. If you don’t the dependency exemption will be denied.

    Exemptions for 2001 are $2900. The standard deductions for 2001 are as follows:  single filers-$4550, head of household-$6650, and married filing joint-$7600.  For itemized deductions to be claimed you need to have paid them in 2001. You may pay your expenses by credit card and still get the deduction for the year of the charge.

    IRS had 390,000 Unclaimed Advance Refund Checks returned. The IRS allowed taxpayers owed a Refund Check to contact them by December 5 so their checks could be processed and mailed to them by the end of the year.  If eligible and the notification was not made, the taxpayer can claim the advance refund as a credit when they file their 2001 income tax return.

    Contributions to an IRA have been increased for tax years 2002 and beyond.  Starting in 2002 until 2004 taxpayers are allowed to contribute $3000 to an IRA.  From 2005-2007 the contribution increases to $4000 and from 2008 and beyond it will be $5000. Retirement accounts in general will be changing so contact your tax advisor.

    As with all proposed changes in taxes, it is wise to keep an eye on the news and by all means seek professional advice if you are unsure as to the effect of any change.  If you have any questions about tax law or changes in the current tax year contact a tax professional.

Terry Stevens is an accountant who operates T.W. Stevens Management Services in Clark Fork. You can reach him at 266-0210.

 

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Terry Stevens

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