THE GOVERNMENT NOW PAYS YOU WHEN YOU SAVE FOR YOUR RETIREMENT

Believe it or not, the government will now pay you up to $1,000 if you put away money for your retirement.  Known as the “Saver’s Credit”, you can receive a tax credit of as much as 50% of the first $2,000 you contribute into either a retirement plan at work or your own IRA account.

Unfortunately, this credit isn’t available to single individuals who earn more than $25,000 or to married couples who earn more than $50,000.  And if you’re a full time student, claimed as a dependent on someone else’s tax return, or under the age of 18, you're not eligible for this tax credit.

• You’ll receive a 50% tax credit, up to $1,000, if you earn less than $15,000 if you're single or less than $30,000 if you’re married.

• The credit is reduced to 20%, up to $400, if you earn between $15,000 and $16,250 if you're single or between $30,000 and $32,500 if you’re married.

• And the tax credit will be 10%, up to $200, if you earn between $16,250 and $25,000 if you're single or between 32,500 and $50,000 if you’re married.

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CHECKLIST TO CUT YOUR TAXES

It's not too late to cut your 2002 tax bill.  Prior to December 31st:

• Increase Your 401(k) and 403(b) contributions if you haven't been contributing at the maximum rate all year.  This year you can put away up to $11,000 into your 401(k) or 403(b) plan at work ($12,000 if you'll be 50 or older by December 31st.).  Amounts contributed reduce your taxable income and grow tax deferred.
  
  

• Take a look at your withholding and instruct your employer to withhold additional taxes if not enough taxes have been withheld during the year and you might be hit with an underpayment penalty.
  
  

• Consider selling your non-retirement investments that have decreased in value since your capital losses can offset other capital gains realized during the year, and then be used to offset up to $3,000 of wages and other income.
  
  

• Send in your January, 2003 mortgage payment early enough so it will be processed prior to 12/31/02.  By sending in your mortgage payment a few weeks early, you can claim the interest portion of that payment a full year earlier.
  
  

• Clean out your closets and donate your clothing and household items to a charitable organization since "non-cash" contributions are deductible if you itemize.  Don't forget to get a receipt.
  
  

• Pre-pay your projected state tax shortfall if you'll be itemizing your deductions and not subject to the alternative minimum tax.
  
  

• Pay off your medical bills if your total medical expenses will exceed 7.5% of your income
  

Andrew Schwartz, CPA, the editor of The MDTAXES website, was interviewed by Boston's NBC affiliate on these year end tax savings strategies, and appeared on their 5:30 pm newscast on 11/21/02.

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WHAT'S NEW FOR 2002?

Many of the provisions included in The 2001 Tax Act signed into law by President Bush last spring didn’t take effect until January 1, 2002.  Here are a few provisions that might affect you:

• Deducting Your Student Loan Interest.  For 2002, the amount you can earn and still deduct your student loan interest has increased.  This year, single individuals can earn up to $65,000, and married couples can earn up to $130,000, and still claim the student loan interest deduction of up to $2,500.
  
  

• Deducting Higher Education Expenses.  In 2002 and 2003, taxpayers can claim a deduction for qualified higher education expenses paid during the year. The maximum deduction is $3,000 per year, and is permitted only if your income doesn’t exceed $65,000 if you’re single or $130,000 if you’re married.  This deduction is allowed even if you don't "itemize".

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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 DECEMBER, 2002

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2002 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 is $.365 per mile in 2002, and will decrease to $.36 per mile in 2003. 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!"

Interact with our CPAs everyday on The MDTAXES Message Board


Join our Live Tax Chat on the first Wednesday of each month at 9 pm (eastern time)

Save for your child’s college education just by doing what you normally do every day.

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