SOCIAL SECURITY MAX INCREASES TO $87,000 FOR 2003

Each year, the government increases the maximum social security taxes that you can pay. According to the Social Security Administration, the maximum wage base for 2003 will be $87,000, an increase of $2,100 from the 2002 max of $84,900. At a rate of 6.2%, the total social security taxes that your employer can withhold from your salary increases from $5,263.80 in 2002 to $5,394.00 in 2003.

In addition, every employee has Medicare taxes withheld from their pay at a rate of 1.45%. There is no limit on your wages subject to this tax.

Do You Work For More Than One Employer and Earn More Than $84,900?

For 2002, each employee is subject to social security taxes on the first $84,900 of wages received during the year. At a rate of 6.2%, this translates into total social security taxes of $5,263.80. There are situations when you might have more than the maximum of $5,263.80 withheld during the course of the year.

Since employers are required to withhold social security taxes on the first $84,900 earned by each of their employees (this allows the government to keep the employer's matching contributions), if you work for more than one employer and earn more than $84,900 during 2002, you'll have excess social security taxes withheld. Make sure to take credit for these excess taxes on your 1040 as additional federal taxes paid in.

For example:

Let's say you work for two employers and earn $75,000 from each employer. Employer #1 will withhold $4,650 in social security taxes ($75,000 * 6.2%). Employer #2 will also withhold $4,650 in social security taxes - for a total of $9,300 in social security taxes withheld during the year. Since the maximum social security taxes that you should pay through payroll withholdings for 2002 is limited to $5,263.80, the excess of $4,036.20 counts as additional federal income taxes paid in by you.

Calculating the self-employment tax:

Self-employed individuals are subject to social security and Medicare taxes as well. These two taxes are reported as part of an additional tax known as the "self-employment tax". Self-employment taxes are calculated on a Schedule SE and are reported as an additional tax on page 2 of the Form 1040.

The self-employment tax is based on a social security tax rate of 12.4% and a Medicare tax rate of 2.9%. These rates are double those paid by employees since a self-employed person must pay both the employee's portion and the employer's portion of both taxes.

If an individual earns income as an employee and as an independent contractor, and the combined income exceeds $84,900 in 2002, Section B of the Schedule SE should be completed. Otherwise, the calculation will be incorrect and too much self-employment taxes will be submitted.

www.ssa.gov

A great place to find out more about your social security taxes and projected benefits is at the Social Security Administration's website located at www.ssa.gov.

FYI: The social security wage base has been increased each year. The wage base maximum has been increased as follows:

2003 wage base max: $87,000

2002 wage base max: $84,900

2001 wage base max: $80,400

2000 wage base max: $76,200

1999 wage base max: $72,600

1998 wage base max: $68,400

1997 wage base max: $65,400

1996 wage base max: $62,700

1995 wage base max: $61,200

1994 wage base max: $60,600

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HAVE YOU SET UP A SOLO 401(K) PLAN YET?

by Andrew D. Schwartz, CPA

Congress loves to tinker with the rules governing your retirement savings. And the 2001 Tax Act signed into law by President Bush last spring is no exception. If you work for yourself, make sure to take a look at the new Solo 401(k) Plan created by last year's Tax Act.

If your goal is to put away as much money as possible for your retirement, this may be the plan for you. For 2002, the maximum contribution into a Solo 401(k) is $11,000 plus either 25% of your salary if your business is incorporated or 20% of your net self-employment earnings if you're a sole proprietor - up to $40,000. Earn $100,000 in net self-employment income, and you can contribute a whopping $31,000 into your Solo 401(k) account that year.

The Solo 401(k) also provides you with access to the money you've invested, since you can borrow as much as 50% of the balance in your account - up to $50,000. Rollover other retirement accounts into your Solo 401(k) account, and you increase the amount of money available to you. Keep in mind, however, that you generally must pay back the loan within five years, or the outstanding balance becomes a taxable distribution to you.

Another benefit of Solo 401(k)'s is that, unlike traditional 401(k) plans, there is very little paperwork or other administrative responsibilities that go along with these plans.

The Solo 401(k) is only available to you if you're self-employed and have no employees that work for you more than 1,000 hours per year, other than your spouse. If you're already contributing to another employer's 401(k) or 403(b) plan, your maximum allowable contribution to a Solo 401(k) will be reduced.

You have until December 31st to set up a Solo 401(k) Plan for this year, so contact your CPA (or one of the CPAs of our network), financial advisor, or financial institution to find out more about this fantastic retirement savings opportunity.

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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.

• If you're carrying a balance on your credit cards, there's plenty of opportunities available to cut your interest rate.  Check out CardOffers.com to find the best deals available.

• If you still owe student loans, see how much you'll save by consolidating your loans into one loan with a lower interest rate at FinancialAid.com.

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WONDERING HOW TO GET BACK $3,000 FROM THE GOVERNMENT FOR EVERY YEAR THAT YOU WERE A MEDICAL RESIDENT?

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HAVE YOU CHECKED YOUR CREDIT REPORT LATELY?

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.

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TAX AND FINANCIAL PLANNING CALENDAR FOR NOVEMBER, 2002

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2002 & 2001 TAX FACTS

• For 2002, the standard deduction for a single individual is $4,700 and for a married couple is $7,850. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes, real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses. Our February, 1998 newsletter addressed the issue of itemizing your deductions.
• For 2002, the personal exemption is $3,000. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  
• The maximum earnings subject to social security taxes has increased to $87,000 in 2003 from $84,900 in 2002.
  
• The standard mileage rate has increased to $.365 per mile in 2002 from $.345 per mile during 2001. Deducting automobile expenses was addressed in our February, 1996 newsletter .
  
• The maximum annual contribution to a 401(k) plan or a 403(b) plan has increased to $11,000 for 2002 from $10,500 in 2001.  And if you'll be 50 or older by December 31, 2002, you can contribute an extra $1,000 into your 401(k) or 403(b) account this year.
• The maximum annual contribution to your IRA has  increased to $3,000 for 2002.  And if you'll be 50 or older by December 31, 2002, you can contribute an extra $500 into your IRA this year.

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Organize Your Finances with Quicken 2001 in a Weekend

Both these books are available at Barnes&Noble.com.

If you have a friend, colleague, or family member who is always bragging about things they have done to cut their taxes, then check out our new gift items with the saying - "Everything is deductible...until you get audited!"

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