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November, 2002 |
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Welcome to the first edition of the new James E.
Newland, Inc. newsletter. We will present on a regular basis
information that is of interest to our clients and subscribers.
Please let us know what you think of this newsletter and what you would
like to appear in future issues. We can be reached at our web site
at www.newlandcpa.com or you can
e-mail us at
service@newlandcpa.com |
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Wash Sales Traps
The recent
decline of the stock market has encouraged many people to sell their
stocks to obtain a loss that can be deducted on their stock returns. This is all well and good, but the loss will not
be allowed if the identical stock is purchased within 30 days prior to or
after the sales of the stock. This is true even if additional shares
are purchased through dividend reinvestment. You may avoid this trap
by avoiding purchases during this 30-day period. You may purchase a
similar, but different mutual fund during this 30-day period without
falling into this trap.
Teacher's Deduction
The Job
Creation and Worker Assistance Act of 2002 provides for a new
above-the-line deduction up to $250 for books and supplies paid for by an
educator who is a teacher, instructor, counselor, or principal for grades
kindergarten through grade 12. This will also save you taxes on your
Ohio income tax return. This deduction is available for the years
2002 and 2003.
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Alternative Minimum Tax
The Alternative
Minimum Tax (AMT) is beginning to impact more middleclass and lower income
taxpayers than anyone thought would be possible. If married
taxpayers file a tax return with a positive income greater than $45,000
they could be subject to this tax. If these taxpayers have any
credits that reduce their regular tax below the AMT tax, additional taxes
would be due and the benefit of these credits would be lost.
Congress has extended for 2002 and 2003 relief that will allow taxpayers
to use the nonrefundable personal credits without triggering AMT.
These credits are the child tax credit, the dependent care credit, the
credit for the elderly and disabled, the adoption credit, the credit on
certain home mortgages, the Hope and Lifetime Learning credit, the IRA
credit and the D.C. homebuyer's credit. It is important that we
convince our congressmen that this relief should be made permanent.
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Individual Retirement Accounts |
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The allowable contribution to an IRA has been raised to $3,000 for the
years 2002, 2003, and 2004 for taxpayers under the age of 50.
Taxpayers 50 years old or older may contribute $3,500. These limits
apply to regular and Roth IRAs. A new credit is available for
contributions to a regular IRA, a Roth IRA, and certain other retirement
accounts for the years 2002 through 2006. This credit can be as high
as 50% for taxpayers filing a joint return with adjusted gross income less
than $30,000 or a separate return with adjusted gross income less than
$15,000. The credit is 20% for joint returns with adjusted gross
income between $30,000 and $32,499 and separate returns with adjusted
gross income between $15,000 and $16,249. The credit is 10% for
joint returns with adjusted gross income between $32,500 and $49,999 and
separate returns with adjusted gross income between $16,250 and $24,999.
The credit is 0% for joint returns with $50,000 or more of adjusted gross
income and separate returns $25,000 or more of adjusted gross income.
This credit will mean that a taxpayer filing a joint return with less than
$30,000 adjusted gross income will save $1,000 in taxed by contributing
$2,000 to his nondeductible
Miscellaneous
The federal
exemption has been raised to $3,000 for 2002 and is expected to increase
to $3,050 for 2003. The Ohio exemption has been raised to $1,200 for
2002.
The standard
deduction for married taxpayers filing a joint return is raised to $7,850,
for married filing separate returns is raised to $3,925, and for single
taxpayers it is raised to $4,700.
The standard
mileage rate for automobiles used for business is 36.5 cents per mile for
2002 and 36.0 cents per mile for 2003.
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Roth IRA. This is a tremendous incentive to contribute to your
retirement plan. Taxpayers who are active participants in their
employer's qualified retirement plan and file a joint return can make a
deductible IRA contribution as long as their adjusted gross income is less
than $54,000 and a partial deduction is allowed until their adjusted gross
income reaches $64,000. For single taxpayers the adjusted gross
income limits are between $34,000 and $44,000. Contributions to a
nondeductible Roth IRA are limited to taxpayers filing a joint return with
adjusted gross income is less than $150,000 and it is limited if their
adjusted gross income is under $160,000. If married taxpayers file
separate returns the adjusted gross income limit is $10,000. Single
taxpayers may contribute as long as their adjusted gross income is less
than $95,000 and it is limited if their adjusted gross income is less than
$110,000. These various limitations are very confusing and required
obtaining expert advise from your tax advisor. You should
either meet with your tax advisor prior to the end of the year or wait
until your tax return is prepared to determine the maximum contribution
allowable.
James E. Newland, CPA
939 Center Road
Eastlake, Ohio 44095
440-951-9799
Service@NewlandCPA.com
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