2003 Tax Tips

Tax Tips (please note-these relate to 2002 tax rules)

Capital Gains Exclusions

The Capital Gains exclusion for personal residences sold after May 6, 1997, is $ 500,000 for married couples filing jointly and $ 250,000 for singles. During the five year period ending on the date of sale, the taxpayer is required to own the home for at least 2 years and lived in the home, as the taxpayer's main home for at least 2 years. This exclusion can only be used once in two years unless the house is sold due to an illness or a job move. Taxpayers that have Capital Gains exceeding $ 500,000 ($250,000 single) on personal residence sales after August 4, 1997, cannot defer taxes by purchasing a more expensive house. The rollover rule has been repealed (remember IRC Section 1034?). See the IRS website for detailed information: Sale of Your Home and Home Exclusion Rules and Selling Your Home

IRA Contribution Limits

IRAs (and many retirement plans) may allow you the opportunity to build your estate wit pretax dollars. Contribution limits for traditional IRA's and Roth IRAs will increase beginning in 2002 to $3,000. The next increase will be to $4,000 in 2004, followed by $5,000 in 2008. Taxpayers that are at least 50 years old may make up to $500 additional contributions to their traditional IRA or Roth IRA in the years 2002 through 2005 and an additional $1,000 in 2006 and after. See the IRS website for detailed information: 2002 Tax Changes: IRAs / Retirement Plans

Personal Exemption Phase-out and Itemized Deduction Limitations

The personal exemption phase-out and itemized deduction limitation will be gradually reduced starting in 2006 and will be entirely eliminated in 2010.

Child Tax Credit

The child tax credit increased from $500 to $600 in 2001. The next increase to $700 occurs in 2005 and is followed by $800 in 2009. In 2010, the child tax credit will by $1,000 for each eligible child. The child tax credit starts phasing out as income exceeds $110,000 for married couples filing jointly and $ 75,000 for single taxpayers. See the IRS website for more information: Child Tax Credit

Dependent Tax Credit

The dependent care credit will increase in 2002. The credit will apply to a maximum of $ 3,000 eligible employment related expenses per child up to a maximum of $6,000 for two or more children. Currently the maximum eligible dependent care expenses are limited to $2,400 per child up to a maximum of $ 4,800 for two or more children. The IRS has further details at: Dependents

Adoption Credit

In 2002, the adoption credit increases to $10,000 for both special needs adoptions and non-special needs. The credit phase-out will increase to $150,000 compared to the current maximum of $ 75,000. The credit for special needs adoptions will be increased in 2003. See the IRS website for further details: Adoption Credit

College Expense Deduction

Qualified college expenses of up to $3,000 may be deducted in 2002 and 2003 for single taxpayers with AGI less then $ 65,000 and married taxpayers with AGI less then $130,000. The deduction increases to $4,000 in 2004 for single taxpayers with AGI less then $65,000 and married taxpayers with AGI less then $130,000. A maximum deduction of $2,000 is available in 2004 and 2005 for single taxpayers with income up to $80,000 and married taxpayers with income up to $160,000. The deduction is repealed after 2005. See the IRS website for further details at: 2002 Tax Changes: Education Incentives

Education Savings Accounts

Annual contributions to education savings accounts will be limited to $2,000 in 2002 compared to the current limit of $500. The phase-out income limit for married couples filing jointly will be $190,000-$220,000 and $95,000-$110,000 for single taxpayers. Corporations, and tax-exempt organizations will also be able to make contributions to education savings accounts in 2002. Contributions for the education savings accounts made up to April 15 can be counted for the current tax year or the precious tax year. Educations savings accounts will be available for elementary and secondary school tuition, and higher education expenses. The IRS website has additional information at: Education Savings Accounts

Student Loan Interest Deduction

Effective 2002, the income phase-out limit has been increased to $100,000-$130,000 for married couples filing jointly and $50,000-$65,000 for single taxpayers. The 60-month limit and the annual dollar limit of $2,500 are repealed. There will not be a limit on student loan interest deduction in 2002. See the IRS website for further details at: 2002 Tax Changes: Education Incentives

Employer Paid Tuition

The $5,200 employer-paid education assistance exclusion is made permanent and will be extended to graduate school starting in 2002. See the IRS website for further details at: 2002 Tax Changes: Education Incentives

Standard Deduction for Married Couples Filing Jointly

The standard deduction for married taxpayers filing jointly will be increased in increments from 2005-2009 until it becomes twice the amount of single taxpayer. This charge only affects married couples filing jointly that do not itemize deductions.

For additional Tax Tips, go to Tax Tips for 2003

For further information and how to implement these in your own tax filing, consult your tax advisor and/or visit the IRS website