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In this section we present you with short newsletters containing
timely and useful information. |
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Our Top 10 Tax Tips for 2003 |
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Your federal income tax liability can just happen and be an annual
surprise, or you can plan your affairs to result in the lowest
possible federal tax obligation. We think planning is the best
approach. Here are the key individual tax planning steps for 2003
that can save you money at tax time. |
Recent legislation changed several parts of tax law affecting
individuals. Some were first effective in 2002, and others in 2003.
We believe it's wise to consider how tax planning will be affected,
so here are our Top 10 individual tax planning tips for 2003.
Rate Reductions
In 2003 rate reductions that were supposed to be phased in over
several years were accelerated. A real planning opportunity is
created by the “temporary” rate cuts in 2003.
1. Accelerate income - deferred compensation is attractive when
future top rates will be significantly lower than current rates.
That is no longer then case. Regular income tax rates now start at
10 percent, and the top rate in 2003 will be 35 percent. Who knows
what the future will bring? Take the money now!
2. Seek investments that pay ordinary dividends or distribute
capital gains – the maximum tax rate on both is only 15 percent in
2003.
3. Shift income to children and grandchildren - in 2003, the lowest
income tax bracket is 10 percent, 25 percent lower than the highest
bracket. Be sure that each child and or grandchild has enough income
to take full advantage of the low rates without becoming subject to
the tax on investment income of a child under age 14.
New IRA Contribution Limits
In 2003, IRA contributions of up to $3,000 are permitted for anyone
with sufficient earned income, and the limit increases to $3,500 for
a person that has attained age 50 before year end.
4. Make the maximum allowable contribution - the combination of
tax-deferred accumulation and new, more liberal, Required Minimum
Distribution rules make the IRA the most attractive retirement
saving vehicle in history.
5. Make your IRA contribution as early as possible each year - tax
deferred accumulation of income begins the day you fund the IRA, and
early funding will provide greater account value at retirement.
New 401(k) Deferral Limits
Participants in 401(k), 403(b), and 457 plans can take advantage of
expanded limits on contributions. The general limit on contributions
to such plans in 2003 is $12,000 with an extra $2,000 allowed for
individuals over age 50 by year-end. It gets better - - employees
will be allowed to defer up to 100 percent of their compensation up
to the deferral limit, if the plan has been amended to permit it.
6. Defer the maximum allowed by your employer's 401(k) plan - that
should also assure you of receiving maximum benefit from any
employer matching contribution.
7. A non-working spouse might consider working to boost the family
retirement assets - reentering the work force for the primary
purpose of making a maximum 401(k) deferral, the lesser of $12,000
or total compensation in 2003, and making a significant improvement
in the family retirement assets.
Expanded Education Incentives
Coordinated rules for Section 529 plans, education IRAs (Coverdell
Accounts), Hope credits and Lifetime Learning credits allow all of
those sources of funding higher education expenses to be of greater
utility to many families. Planning which education costs to pay from
what funding source, and when to pay them, is necessary in order to
gain maximum benefit from all available tax advantaged education
assistance programs. Two new opportunities, first available in 2002,
continue to be good ideas in 2003.
8. Take advantage of the Education Expense Deduction - in addition
to all other assistance provisions, and requiring careful
coordination with them for maximum benefit, a new deduction of up to
$3,000 is allowed for college tuition costs. If your adjusted gross
income does not exceed $65,000, for singles, or $130,000, for
married taxpayers filing joint returns, you qualify. No deduction
can be claimed for expenses of a student for whom a Hope or Lifetime
Learning credit is also claimed.
9. Fully fund Coverdell Education Savings Accounts - Contributions
of up to $2,000 per child are allowed each year, and the benefit is
not phased out until contributors have adjusted gross income between
$190,000 and $220,000. Tax-free withdrawals are also allowed for
qualified elementary and secondary education expenses. If you can
begin funding early enough, and can maximum fund all available
programs, use the Coverdell account for pre-college costs and
coordinate a Section 529 Plan with the Hope credit and Lifetime
Learning credit for higher education expenses.
10. Fund a Section 529, Qualified Tuition Program (QTP) - tax-free
distributions can pay for many higher education expenses. In
addition, QTP distributions can be coordinated with Hope and
Lifetime Learning credits as long as each is used to cover different
expenses.
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