|
Articles & Publications
Published in: Parkland Life Magazine
Date: July 2003
 |
|
President Bush signed into law on May 28, 2003 “The Jobs and
Growth Tax Relief Reconciliation Act of 2003”. The goal of
this act was to increase certain deductions and benefits to help
stimulate the economy. Here are a few highlights of how this law
affects the individual taxpayer.
Lower Tax Rates – The following tax rate brackets have been
reduced to the rate shown – 27% to 25%, 30% to 28%, 35% to
33% and 38.6% to 35%.
Higher Child Tax Credit – The maximum child tax credit has
|
increased from $600 to $1,000 per child. In fact, starting at the
end of July, the IRS will be sending checks to taxpayers who claimed
the child tax credit for 2002. The checks are an advance payment
of the increased portion of the child tax credit for 2003, ($1,000-$600=$400)
up to a maximum of $400 per child. The amount sent will be based
on the 2002 tax return information using the number of qualifying
children under age 17 as of December 31, 2003. You do not have to
take any action, as the IRS will automatically send the amounts
calculated.
Capital Gains Tax Reductions – The maximum tax rate on net
capital gains (net long-term capital gains reduced by any net short-term
capital losses) has been reduced from 20% to 15% for property sold
or otherwise disposed of after May 5, 2003.
Dividend Income Tax Reductions – The maximum tax rate on dividends
paid by most domestic and foreign corporations after December 31,
2002 will be 15%.
Marriage Penalty Reductions – In the past, there have been
some inequities concerning taxes for Married Filing Jointly filers
vs. Single filers. This act has increased the standard deduction
for married taxpayers filing jointly to twice that of the single
taxpayers. Also, the 10% and 15% tax bracket for married filing
jointly has been expanded to twice that of single filers.
As always, there are caveats and disclaimers for each adjustment
described above. Please discuss any questions with your professional
tax advisor.
Published in: Parkland
Life Magazine
Date: November 2003
 |
|
It is now November and it is a good time to
review your tax situation for 2003. Are you going to owe taxes or
are you going to receive a refund? Let’s go over a quick and
rather painless way to estimate your 2003 tax situation.
First find your 2002 tax return. Now let’s compare the 2002
amounts to what is going on in 2003. Determine how your wages and
salaries compare from 2003 versus 2002. Your latest pay stub should
have a “Year-to-Date” amount. Figure out how many pay
periods are left in the year and then you can project your 2003
wages and salaries figure. For self employed individuals the estimation
process is a little more complex. Self employed individuals will
need to find their 2002 Schedule C and compare the income and expense
items from last year to what has happened so far in 2003. Then make
|
a reasonable estimation on what income and expenses will be for
the rest of the year.
The next step is to compare the other items on the 2002 tax return
with what you expect to happen in 2003. Interest and dividends may
be similar from year to year; however, if you used some of your
savings to pay off loans, pay for your child’s education or
perhaps you increased your investment portfolio, you will need to
adjust the amount from the previous year.
Capital gains and losses usually change every year. Keep in mind
that you may have a loss carryover and there is a maximum loss amount
that can be deducted from income. If you have rental property determine
if the property was rented for the same time and amount as occurred
in 2002. Also factor in any extraordinary costs incurred to upgrade
and maintain the property.
Continue to compare the 2002 amounts on your tax return with what
you expect in 2003. You also need to compare the itemized deductions
that are shown on your 2002 return with what you expect in 2003.
Go over the amounts on the Schedule A and make sure you adjust for
any changes in 2003. If you refinanced this may affect your interest
expense. Also, if you just recently purchased a home the real estate
tax deduction may be different from the previous year. Unexpected
medical costs and how much charitable donations (cash and other
than cash) are also items that could change from year to year.
Calculate your estimated taxable income for 2003. Is this amount
significantly different from 2002? If the taxable income is close
to the amount reported in 2002, then determine the effective tax
rate for 2002. Since the tax rates for 2003 were lowered by approximately
two percent, adjust the effective 2002 tax rate accordingly. Compare
the estimated tax liability with the amount that was withheld as
shown on your pay stub. For self employed individuals compare the
estimated tax with your quarterly tax deposits (do not forget to
add the self employment tax to your amount owed).
After reviewing your estimated tax owed or refund due, remember
that your dividend income can be taxed at a maximum of 15 percent
and net capital gains at a maximum 15 percent (for sales that occurred
after May 5, 2003).
Looking for deductions and since it is only November; you can still
donate clothes and other items to charities. You can pay deductible
costs in 2003 that may not be due until 2004 to receive the deduction
in 2003 (organization dues, subscriptions, house payment, real estate
taxes, and business costs). Also consider having your customers
pay you in 2004 instead of 2003 to lower your income (for cash basis
tax payers).
If your income is low for 2003 and you are expecting 2004 to be
a better year then delay paying some deductible costs until 2004.
Also consider having your customers pay you in December instead
of January to shift some income from 2004 to 2003.
The estimating of your tax situation now, rather than in April will
give you and your tax professional time to maximize the money that
you work so hard to earn. Before you make any decisions please discuss
your situation with your tax professional.
Published in: Parkland Life
Magazine
Date: January 2003
 |
|
While you are gathering the forms, statements, bills, receipts and
other information needed to complete your 2002 income taxes, do
you ever wonder where did the money go? Does your tax return usually
have a sizeable refund or significant amount due? Did you do any
tax planning during the previous year? Is it time for you to consider
building a tax plan for 2003?
A good tax strategy is to have a completed tax return with a minimal
refund available or a small amount owed. A sizeable refund available
means that the government has used your money without the benefit
of interest or other potential earnings. A significant amount due
may cause you to owe penalties and interest in addition to the tax.
|
If you work through the following steps, you will be well on your
way to having a tax plan for 2003.
Step 1 – Review what happened in 2002. Figure out where your
money came from and where it went. As you gather your records together
to complete your 2002 income taxes, note how much income your household
earned. Also note how much and where your costs were spent and how
much income tax you paid. Using an accounting software package to
pay your bills and balance your checkbook simplifies this step.
Step 2 – Determine your tax liability or refund for 2002.
If you are receiving a sizeable refund or owe a significant amount
then you should adjust the amounts being paid to the IRS. Employees
should request a Form W-4 from their employer and recalculate their
withholding exemptions. By claiming more exemptions on Form W-4,
the employer will withhold less income tax from the paycheck. Or,
by claiming fewer exemptions, the employer will withhold more income
tax from the paycheck. Self-employed taxpayers that either owe significant
amounts at the end of the year, or have a sizeable refund due should
review how they are calculating their quarterly estimated payments.
Compare your self-employment income and expenses from your 2002
return with the amounts used in calculating the quarterly estimates.
When preparing the quarterly estimates, make sure you take into
account a reasonable estimate for other income (like interest received,
dividends and capital gains) and other deductible expenses (like
interest paid, real estate taxes, charitable contributions, IRA
contributions, and child care credits). Remember, a large refund
might be nice, but the IRS does not pay you interest on your overpayments.
Likewise, a large year-end payment could be cause for penalties
and interest owed to the IRS.
Step 3 – Plan for 2003. Estimate what you think your earnings
will be for the current year. Take the deductions allowed on the
2002 return and calculate what you would owe if your estimated income
number is accurate. Compare the tax bracket you were in for 2002
with the tax bracket you estimate for 2003. Is one year higher than
the other? If so, would you have benefited by deferring income from
2002 to 2003? How about shifting deductions from one year to the
other? Did you maximize your capital loss deduction? Did you take
full advantage of the charitable giving deduction?
Step 4 – Review and update your plan during the year. Wouldn’t
it have been nice to know your tax bracket for 2002 during 2002?
That way if you knew the current year tax situation would be different
from the next years tax situation, you could have taken steps to
maximize your deductions and minimize your effective tax rate.
An example is that you predict next year your business income will
be fifty percent higher than this year’s income. So next year
you will be subject to a higher tax bracket. Is there a way for
you to shift income from next year to this year? Can you defer deductions
from this year to next year? Can you manage your portfolio of investments
to have net gains in this year and net losses next year?
Tax planning can work to your advantage only if you have a strategy
and you have a reasonable estimate of your taxable income before
the year is over. Waiting until April to think about how to lower
last year’s taxes will not be beneficial. Talk to your tax
preparer about your individual situation. Remember, to get the most
out of your car or house you need to do preventative maintenance.
Why not do some preventative maintenance on your tax situation so
that you can maximize your earnings and receive the greatest benefit
from your deductions.
|
