An index and links to our previous months' newsletters can be found
Interact with our CPAs every day at the MDTAXES
Message Board, or the first Wednesday every month, at
9 pm Eastern Time, during our Live
WHAT'S NEW FOR 2002?
What's new for 2002? A lot. Remember, many of the changes
from last spring's tax bill took effect January 1, 2002. Let's
take a look at some of the changes that might help you save some
taxes this year:
PAYING FOR YOUR EDUCATION
If you're paying your student loans, the new tax rules
make it easier for you to deduct your student loan interest.
Starting in 2002, single individuals can earn up to $65,000 (up from
$55,000) and married couples can earn up to $130,000 (up from
$75,000), and still claim the student
interest deduction of up to $2,500 per
year. Plus, the rule limiting the deduction to the first 60 months of
loan repayment will be eliminated. And if you make payments on
your student loans while they're still in deferment, you can now
deduct the interest paid.
Plus, if you're still taking classes, you're allowed
to deduct up to $3,000 in qualified higher
education expenses this year, even if you
don't itemize your deductions. To be eligible for this
deduction, your income can't exceed $65,000 if you're single or
$130,000 if you're married.
And find out whether your employer offers to pay up to
$5,250 towards your undergraduate or graduate level tuition as part
of the benefits package. Effective January 1, 2002, this
tax-free benefit for employer-provided
education assistance was made permanent and
will once again cover graduate as well as undergraduate education.
If you're single and earn less than $25,000, or
married and earn less than $50,000 combined, the government
will pay you as much as 50% (up to
$1,000) of the amount you contribute into an IRA or a retirement plan
at work, such as a 401(k) or 403(b) plan.
This year, the maximum
contribution limit into an individual retirement accounts (IRA)
is $3,000, an increase of $1,000 from the previous limit of $2,000.
Employee contribution limits
to 401(k) and 403(b) plans has increased by
$1,000 as well, up to $11,000 in 2002.
And if you work for a small employer that offers a
SIMPLE IRA, you can contribute up to $7,000 this year, up from
$6,500 in 2001.
Catch-up contributions will
be allowed for individuals who are 50 or older prior to December 31,
2002. For 2002, these taxpayers can contribute an additional $500 to
their IRAs. Plus, higher catch-up contributions are permitted for
other retirement plans, so make sure to find out from the plan
administrator how much can be put away into your retirement accounts
If you work for a small business that doesn't
currently offer a retirement plan, let the owners know about a new tax
credit equal to 50% of the cost of setting-up and administering the
new plan. The credit can be taken on up to
$1,000 of expenses for each of the first three years of the plan.
SAVING FOR A CHILD'S EDUCATION
The amount you can contribute into an Education
Savings Account (ESA) has been increased to $2,000 per child per
year (up from $500). Plus, money can now be withdrawn tax-free
from your ESAs to pay for elementary and secondary school expenses,
as well as higher education costs. More taxpayers will qualify to
make contributions since the income phase-out range for married
taxpayers filing jointly has increased to $190,000 - $220,000 (from
$150,000 - $160,000.)
Qualified tuition programs
(529 Plans) were improved as well. Through 2010, qualified
distributions taken from state-sponsored tuition programs will be
tax-free. Hopefully, this provision will be extended beyond
2010. Plus, there is no income limitation associated with these
plans, and you can put away significantly more money into a 529
account than an ESA.
The new 10% tax rate
applies to the first $6,000 of taxable income for single individuals,
$10,000 for heads of household, and $12,000 for married couples
The tax rates above 15% continue to drop.
For 2002, the rates are reduced to 10%, 15%, 27%, 30%, 35%, and 38.6%.
NEED SOME HELP WITH YOUR TAX PLANNING?
Check out our Directory of
Affiliated Offices to find a CPA near you who specializes in the
tax planning and preparation for young health care professionals.
THE POSSIBILITY OF HOME
OWNERSHIP MAY BE CLOSER THAN YOU THINK
When the time comes for you to purchase your first home, finding a
great house or condo is the easy part. For many first-time
homebuyers, coming up with money for the down payment and closing
costs poses much more of a challenge. If your savings account
isn't exactly bursting at the seams, you might still be able to
scrape together enough money to purchase a home if you know where to look.
How Much Do You Need?
If you're short on funds, the first step is to determine the minimum
amount of money you need in order to purchase a home. Talk to
some banks, mortgage brokers, and your credit union to find out what
kind of low down payment mortgage programs are available. Ask
your friends and colleagues if they did anything creative when they
bought their homes. And while you're surfing the web, see what
interesting ideas and suggestions you can find. Once you
determine how much you need, the next step is to determine where the
money will come from.
Borrow Against Your 401(k) or 403(b) Account
If you've been contributing to a 401(k) or 403(b) plan at work, give
the benefits department a call to see if you're allowed to take a
loan from your account. Most plans allow you to borrow up to
50% of your account balance for the purchase of a home. What's
the catch? If you quit or get fired before you pay back the
loan, the outstanding balance will be treated as a taxable
distribution and will probably be subject to a 10% early withdrawal
penalty as well.
Don't Overlook Your IRAs
Another source for the down payment is your Individual Retirement
Account (IRA). While borrowing against an IRA is prohibited,
you are allowed to withdraw up to $10,000 for "first-time"
homebuyer expenses without being hit with the 10% early withdrawal
penalty. Keep in mind, however, that you will owe income taxes
on the amount withdrawn and will be dipping into money that is
earmarked for your retirement.
Roth IRAs provide some opportunities as well. Contributions
made to a Roth can always be withdrawn at a later date. Plus,
up to $10,000 of the accumulated earnings can be withdrawn by
first-time homebuyers, subject to certain restrictions. Even
though both of these withdrawals are tax-free and penalty-free, you
should only take money out of this tax-free investment opportunity as
a last resort.
Many first time homebuyers turn to family members for assistance with
their down payment. If you're fortunate enough to be getting
some help from your family, try to deposit that money into your
savings account at least three months before you apply for the
mortgage. Otherwise, the loan underwriter will ask why a lump sum of
money suddenly appeared in your account and will request that you
provide a gift letter signed by the donor.
It Can Be Done
Plan ahead. Very few first-time homebuyers these days have
enough money in their savings accounts to cover a 20% down payment on
a new home.
TAX AND FINANCIAL PLANNING
CALENDAR FOR MAY, 2002
Saving and Investing
SPRING CLEANING? DON'T FORGET ABOUT
YOUR PERSONAL FINANCES
If you're married, and you and your spouse need
some guidance, check out
(Brought to You By Your Friends at MDTAXES.COM)
For 2001, the standard deduction for a single individual is $4,550
and for a married couple is $7,600. A person will benefit by
itemizing once allowable deductions exceed the applicable standard
deduction. Itemized deductions include state and local income taxes,
real estate taxes, mortgage interest, charitable contributions, and
unreimbursed employee business expenses. For 2002, the standard deduction has increased
to $4,700 for single individuals and to $7,850 for married couples.
- For 2001, the personal exemption is $2,900. Individuals
will claim a personal deduction for themselves, their spouse, and
their dependents. For 2002, the personal exemption has
increased to $3,000.
- The maximum earnings subject to social security taxes
has been increased to $84,900 in 2002 from $80,400 in 2001.
- The standard mileage rate has been increased to
$.365 per mile in 2002 from $.345 per mile during 2001.
- The maximum annual contribution to a 401(k) plan or
a 403(b) plan has been increased to $11,000 for 2002 from
$10,500 in 2001. And if you'll be 50 or older by December 31,
2002, you can contribute an extra $1,000 into your 401(k) or 403(b)
account this year.
Home | Monthly
Tax Newsletter | TAX FAQS | Retirement
APGAR Test | Income Tax Services | Offices
| Search Our Site
The MDTAXES Network
(800) 471-0045 ~ fax (800) 547-3366
E-mail us at: email@example.com