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Planning for 2002

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    Federal tax rates for 2002 and 2003 are changing downward to the following brackets, 1) 10% for the first $6000 (single) or the first $12000 (married filing joint). The 15% bracket remains unchanged, and each of the rest of the brackets change down by one-half percent to 27%, 30%, 35%, and 38.6%. The next rate change will take place in 2004.

    The old Education IRA now called the “Coverdell Education Accounts” has also changed for 2002. The amount of contribution allowed has changed from $500 to $2000. In addition to this change, the definition of “qualified education expenses” that can be paid tax free, now includes elementary and secondary school expenses. To qualify, the IRS wants you to meet income limitations, so contact a qualified tax professional.

    Education credits will still be as much as $1500 of the first $2000 of qualifying college costs for the first two years (Hope Credit), and 20% of the first $5000 for all years after that (Lifetime Learning Credit). A new deduction for 2002 and 2003 is the above-the-line deduction for qualified higher education expenses, to a maximum of $3000 per year, for 2004 and 2005 the deduction will be $4000. In years past, you had to itemize to claim this deduction, now you don’t have to. There are income limitations, so contact a qualified tax professional. Other changes for education include the Coverdell Education Accounts IRA, Qualified tuition programs, and Employer provided education assistance.

    Starting in 2002, IRA changes increases the potential contribution amount to $3000. If you are age 50 or older you can make a “catch-up” contribution of $500.00 There are a number of changes relating to retirement accounts including deferrals under a 401k, 403(b), 457, or SARSEPs, deferrals under SIMPLE, Employer retirement plans both Defined Contribution Plan and Defined Benefit Plan. In addition, middle and lower income taxpayers may qualify for a new “Retirement Credit up to 50% of what you save up to a credit of $1000 on a $2000 contribution. Again, there are income limitations, so contact a qualified tax profession.

    The above changes are some of the major changes available that may affect your payment of taxes in 2002. There are numerous other changes available, which may also affect you taxes. If you need help with changes in your tax situation check with a qualified tax professional.

    Terry Stevens is a Member: National Associate of Tax Professionals and has an office in Clark Fork, Idaho. Call him at 208-266-0210

 

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Terry Stevens

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