Tax Facts
"You still have time to lower your taxes and there are many ways to do it. Because of the many changes in the tax law that take effect next year, you need to consider the impact your 2001 actions may have on your 2002 return."
-- Jackie Perlman, MSA, CPA
Senior Tax Research Analyst, H&R Block
Look at reducing
2001 taxes,
but don't forget 2002
H&R Block suggests the following five
areas to look at if you want to reduce your tax obligation for
this year:
1. Accelerate deductions
or defer income It might be beneficial to pay medical
expenses, state income tax estimates and property taxes before
the end of this year. That way, you'll be able to claim the expense
as a deduction on your 2001 return. If you have the choice, you
also may want to take a year-end bonus in January rather than
December. That way your taxes will be lower in 2001 and
you may be able to take advantage of lower tax rates that will
be in effect next year.
2. Review your investments
The question of whether to take capital gains or losses
is made more complex this year by The Taxpayer Relief Act of
1997, which added two new capital gains rates of 8 percent and
18 percent. You may be able to take advantage of those lower
rates, but you will want to consult a tax advisor to be sure.
It still holds true that you can sell securities at a loss to
offset capital gains completely, plus up to $3,000 of other income
($1,500 for married filing separately).
3. Get the charitable
deductions you are entitled to, but don't overdo it
Many Americans have donated time, goods or money to the relief
efforts stemming from the Sept. 11 tragedies. While the
donation of money or goods is fully deductible - make sure you
keep your receipts - the donation of time or services is not.
You can, however, deduct any out-of-pocket expenses, such as
travel or lodging, that were incurred as a part of that volunteer
effort.
4. Pay attention
to how you save and pay for college Few areas received
as much attention in the new tax law as that of higher education.
In 2002, the ability to deduct student loan payments is greater,
taxpayers at higher income levels can deduct some college expenses
for themselves or dependents, and withdrawals from state sponsored
college savings plans (called Section 529 plans) become tax-free
rather than just tax-deferred. Because of the changes, the question
of paying college expenses this year (and perhaps qualifying
for the Hope Scholarship or Lifetime Learning Credits) or deferring
them until next becomes more complex. A good reason to see your
tax advisor.
5. Start your Social
Security next year If you are retiring this year, you
may be able to lower your taxes by deferring the start of Social
Security benefits until next year. Benefits are potentially taxable
and most people have a lower income the year after they retire.
