Free Internet Filing Option: Through a partnership between the IRS and the tax software industry (i.e., Free File Alliance, LLC), qualifying taxpayers will be able to access free, online tax preparation and electronic filing services on the Internet at www.irs.gov for the upcoming tax filing season. One may qualify to do free federal tax return even with high AGI. However, many service companies charge a nominal fee for filing your state tax return.
Lower Individual Tax Rates: Most of the federal tax rates have decreased by ½ percent and there is 10 percent tax bracket on 2002 rate charts.
Education IRA Renamed: The education IRA has been renamed Coverdell Educational Savings Account. Contribution to this account is not deductible; has been increased to $2,000 and contribution permitted until April 15. Qualified education expenses include elementary and secondary school expenses. Also, the income phase out range for contributions to Coverdell Educational Savings Account for married taxpayers filing jointly is increased to $190,000 to $220,000.
Tuition and Fees Deduction: One may be able to deduct up to $3,000 of the qualified higher education expenses as above the line deduction. However, taxpayers will have to choose between this deduction and a Hope or Lifetime Learning Credit. It is generally available to taxpayers with adjusted gross income below $65,000 ($130,000 for married filing jointly). If taxpayer gets phased out of education credits, then this eligibility for this deduction should be considered.
Radial Keratotomy (RK) and Weight Loss Program: RK (eye surgery) is a deductible medical expense per IRS private letter ruling. IRS has also finally acknowledged that obesity is a medical problem and weight loss program as treatment for obesity diagnosed by a physician are deductible medical expenses subject to AGI limitations. However, the cost of diet food is not deductible as medical expenses.
Retirement Planning: New tax law increases overall contribution amounts to 401(k), IRAs, and other types of retirement plans and has “catch up” provisions for those who are 50 or older. Most of these increased contribution limits took effect on Jan. 1, 2002. As many retirement accounts have lost so much money, that taxpayers may have reduced their contributions. Now will be a good time to review the retirement income needs, contribute maximum contributions to tax deferred accounts and make age 50 catch up contributions to IRA and deferred accounts. You can also go to www.SSA.com to estimate your social security income at retirement.
Women’s Financial Health Week: American Institute of Certified Public Accountants and Money magazine celebrated Jan. 13-17, 2003 as Women’s Financial Health Week. You can evaluate your financial know-how with the tools provided on www.womensfinancial healthwe-ek.com and also find additional useful information.
Parveen Maheshwari is a Certified Public Accountant. He can be reached at (650) 340-1400 or parveen@cpamax.com