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HOME OFFICE UPDATE
Back in 1999, the government made it easier for people to qualify for the home office deduction. No longer were you required to perform your income producing activity (such as seeing patients) within your home office. Instead, as long as you used a portion of your home regularly and exclusively to perform administrative and managerial tasks related to your trade or business, you would qualify.
For renters, this was great news. Since rent isnít otherwise deductible on your federal tax return, being able to claim the home office deduction made a portion of your rent deductible.
For homeowners, however, there was always a trap. If you sold your home for a gain, you would generally be taxed on the portion of your home that you claimed as your home office. This pitfall caused many homeowners to forego this deduction.
Well, the IRS issued final regulations this year pertaining to homeowners who claim the home office deduction, and re-wrote the rules in favor of the homeowner. Under the new rules, if the home office is within your home (and not a separate structure on your property), you no longer would be taxed on the portion of the gain that is attributable to your home office when you sell your home. All you need to do is pay taxes on the depreciation you claimed over the years.
If you were eligible to claim the home office deduction during any of the three previous tax years, and didn't do so because you owned your home and were worried about paying taxes when you sell your home, you still have time to file an amended tax return claiming the home office deduction.
INCREASED TAX BREAKS FOR STUDENTS PAYING TUITION
Anyone paying tuition should be aware of these changes taking effect in 2003 and 2004:
With a presidential election
right around the corner, itís only a matter of time before we
start hearing about tax simplification once again. And the
timing couldnít be better. Thanks to the two tax law
changes enacted during the past three years, the income tax code has never
been more complicated.
Reduced rates: Just about everyone will save taxes since the top bracket was reduced by 3.6%, and the next three brackets were each cut by 2%. A single person with taxable income of $78,400 will save $1,000 in taxes. With $278,400 in taxable income, the savings jumps to $5,000.
Good news for
investors: The maximum long-term capital gains tax rate was cut to 15%
for most taxpayers, but only for post-May 5, 2003 transactions. Remember, to
qualify as long-term, an investment must be held for more than one year
before being sold. The tax rate on dividends was also cut to 15%, a
reduction of 23.6% from the previous top rate.
Beware of the A.M.T.: One byproduct of this tax-cut package is that your chances of getting hit by the Alternative Minimum Tax (AMT) have increased substantially. When youíre subject to the AMT, you lose out on your personal exemptions, your standard deduction, and on certain itemized deduction. While your mortgage interest and charitable contributions generally remain fully deductible, your real estate taxes, state income taxes, unreimbursed professional expenses, and certain home equity loan interest arenít deductible under the AMT.
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SAVE MONEY BY TAKING ADVANTAGE OF LOW INTEREST RATES
Are you taking advantage of these reduced rates? Lower rates will help you cut down on the time it takes you to get out of debt by minimizing the interest you pay each month. Remember, the lower the interest rate, the larger the portion of your monthly payment that will get applied against your outstanding balances.
You work hard to keep your credit report as clean as possible. Even so, the current credit reporting system allows for incorrect items to appear on your report that could adversely affect your credit score. Make sure that the information on your credit report is accurate by ordering a free copy of your credit report on-line at OnlineCreditInfo.com or by purchasing a merged credit report reflecting information from all three credit reports at 130secondreport.com.