1-800-471-0045
FAX 1-800-547-3366

CPAs SPECIALIZING IN HEALTH CARE PROFESSIONALS


 

 

MONTHLY TAX NEWSLETTER - DECEMBER 2000

An index and links to our previous months' newsletters can be found at oldnews.html


ALMOST DOESN'T COUNT

During 2000, there were ALMOST some great changes to the tax laws. Congress passed a bill that would have eliminated the estate (inheritance) tax system within 10 years, but, as promised, President Clinton vetoed this bill. Congress passed other bills containing provisions reducing the marriage penalty and increasing the maximum annual contribution for IRAs to $5,000 and for 401(k) and 403(b) accounts to $15,000. All of these bills were vetoed as well.

The issue at hand isn't to dwell on what could have been. Instead, take a look at the changes proposed by Congress as an indication of changes that might be included in future legislation that could ultimately be signed into law.

 

CHECKLIST TO CUT YOUR TAXES

It's not too late to cut your 2000 tax bill. Prior to December 31st:

  • Increase 401(k) and 403(b) contributions if you haven't been contributing at the maximum rate all year. Amounts contributed reduce your taxable income and grow tax deferred.

  • Take a look at your withholding and instruct your employer to withhold additional taxes, if necessary, so you can avoid being hit with an underpayment penalty.

  • Consider selling your investments that decreased in value since your capital losses can offset other capital gains realized during the year, and then used to offset up to $3,000 of wages and other income.

  • Send in your January, 2001 mortgage and student loan payments early enough so they will be processed prior to 12/31/00.

  • Clean out your closets and donate your clothing and household items to a charitable organization since "non-cash" contributions are deductible if you itemize.

  • Pre-pay your projected state tax shortfall if you'll be itemizing your deductions and not subject to the alternative minimum tax.

  • Pay off your medical bills if your total medical expenses will exceed 7.5% of your income.

 

YEAR END TAX PLANNING

During December, you should evaluate whether you'll save any taxes by postponing 2000 income or deductions into 2001 or by accelerating 2001 income or deductions into 2000. While many factors should be evaluated prior to making your final decision, a few items to keep in mind are as follows:

  • For 2000, a single person will itemize once allowable deductions exceed $4,400 and a married couple will itemize once allowable deductions exceed $7,350.

  • A taxpayer is no longer subject to Social Security or self-employment taxes once wages and net self-employment earnings exceed $76,200 in 2000 and $80,400 in 2001.

  • Miscellaneous itemized deductions, such as unreimbursed employee business expenses, are only deductible to the extent they exceed 2% of adjusted gross income as reflected on line 33 of the Form 1040. Items paid with credit cards are deductible in the year charged.

  • Medical expenses are deductible to the extent they exceed 7.5% of adjusted gross income. Payments for medical services not yet performed are not deductible.

 

DEDUCTING BUSINESS RELATED EXPENSES

According to the IRS, to be deductible as a business expenses, an expenditure must be both "ordinary" and "necessary" in connection with your profession. The IRS, defines "ordinary" as common and accepted in a particular profession and "necessary" as helpful and appropriate for a particular profession. The following 16 business related expenditures are commonly incurred by young health care professionals:

Automobile expenses * Beepers and pagers * Books/library * Cellular telephones * Computer purchases * Education, examinations & licenses * Equipment & instruments * Job search * Malpractice insurance * Meals & entertainment * Parking & tolls * Professional dues, journals & subscriptions * Psychoanalysis as part of training * Supplies * Travel & lodging * Uniforms & cleaning

 


TO DO LIST FOR DECEMBER, 2000

Month

Income Taxes

Saving and Investing

 

December

  • 4th qtr state estimates should be paid by 12/31 for people who itemize their deductions

  • 5 year end tax savings strategies to minimize your year 2000 liability can be found at: http://www.mdtaxes.com/news1299.html

  • Keogh plans must be established by 12/31

  • Education IRAs must be funded by 12/31

  • Last chance to maximize annual contribution to your 401(k) or 403(b) plan.


1999 & 2000 TAX FACTS

  • For 2000, the standard deduction for a single individual is $4,400 and for a married couple is $7,350. 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 2000, the personal exemption is $2,800. Individuals will claim a personal deduction for themselves, their spouse, and their dependents.

  • The maximum earnings subject to social security taxes has been increased to $80,400 in 2001 from $76,200 in 2000.

  • The standard mileage rate has been increased back to $.325 per mile as of January 1, 2000 from a rate of $.31 per mile as of April 1, 1999.

  • The maximum annual contribution to a 401(k) plan or a 403(b) plan is currently $10,500 in 2000.


Home | Monthly Tax Newsletter | TAX FAQS | Retirement Savings Calculator
Financial APGAR Test | Income Tax Services | Offices | Search Our Site


The MDTAXES Network
(800) 471-0045 ~ fax (800) 547-3366

E-mail us at: cpa@mdtaxes.com