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CHECKLIST TO CUT YOUR TAXES
It's not too late to cut your 2001 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 so you can avoid being hit with an
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
Send in your January, 2002 mortgage payment early enough so it
will be processed prior to 12/31/01.
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
PLAN AHEAD TO TAKE ADVANTAGE OF THE NEW TAX RULES
This past spring, President Bush signed The Economic Growth and Tax
Relief Reconciliation Act of 2001 into law. Many of the
provisions take effect January 1, 2002, so planning ahead is a must,
especially for the following:
Deducting Your Student Loan Interest. For 2001 and 2002,
you can deduct up to $2,500 in student loan interest per year.
However, this year, if you're single and earn more than $55,000, or
married and earn more than $75,000, you're out of luck.
Starting in 2002, single individuals can earn up to $65,000 and
married couples can earn up to $130,000, and still claim the student
loan interest deduction.
Deducting Higher Education Expenses. In 2002 and 2003,
taxpayers will be allowed to claim a deduction for qualified higher
education expenses. The maximum deduction is $3,000 per year, and is
permitted only if your income doesn't exceed $65,000 if you're single
or $130,000 if you're married.
If you're paying student loans or higher education expenses, planning
ahead is a must if you're looking to maximize your tax savings.
UP YOUR MONTHLY SAVINGS AMOUNTS
The recent tax law change increased the maximum allowable
contributions into certain retirement and college savings
opportunities as of January 1, 2002. Contributing the maximum into
these tax advantaged savings opportunities is a great way to build up
a nest egg to meet some of your financial goals.
New Annual Maximum
IRA or Roth IRA
401(k) or 403(b) Plan at Work
Education Savings Account (formerly Education IRA)
$2,000 Per Child
MORE CAPITAL GAINS CHAOS
Starting this year, the maximum
capital gains tax rate on investments held for more than 5 years will
be reduced from 20% to 18%. This reduced rate applies to
investments made after December 31, 2000, and to certain investments
made prior to January 1, 2001, only if a special election is made on
your 2001 tax return. (The first year that you'll be able to take
advantage of the 18% tax rate, therefore, will be 2006.)
To make this special election,
you'll need to treat an investment as if it were sold and re-purchased
on January 1, 2001. If the value of the investment is higher
on January 1, 2001 than when it was purchased, you'll owe taxes on
the gain. If, on the other hand, the investment decreased in
value, you're not allowed to claim that loss this year.
Should you consider making this
election? Yes, if you're fairly certain that you'll hold onto
the investment for more than five years, or if you have enough losses
(and carryfowards) to offset the gains you'll realize in connection
with this special election.
CALENDAR FOR THE MONTH OF DECEMBER, 2001
Saving and Investing
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.
MAKE FINANCIAL PLANNING ONE OF YOUR NEW
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 2001, the personal exemption is $2,900. Individuals
will claim a personal deduction for themselves, their spouse, and
- 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
$.345 per mile as of January 1, 2001 from $.325 per mile
- The maximum annual contribution to a 401(k) plan or
a 403(b) plan remains at $10,500 for 2001, and has been
increased to $11,000 for 2002.
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