Tax Changes What’s New For a 2002 Return?
Over the last several weeks we have reviewed some of the more prominent tax changes that apply to the 2002 tax year. There are, however, a number of other tax changes that may be very beneficial to taxpayers. To begin with, in the retirement arena, there are a number of significant changes. First, if you contributed to an IRA or an employer sponsored retirement plan such as a 401k plan in 2002, you may be eligible for the Retirement Savings Contributions Credit. This is a nonrefundable credit that is in addition to any other deductions and can be up to $1,000 per taxpayer. This is a tremendous benefit to the taxpayer because not only do they get the deduction for the retirement contribution, but they get a tax credit as well.
Second, the level of qualifying incomes is higher for persons who want to take advantage of IRA contributions this tax year and who are covered by an employer retirement plan. Specifically, the IRS will allow a married couple filing a joint return to contribute up to $3,000 to each spouse’s Individual Retirement Arrangement, even if one spouse has little or no earned income. A single person or head of household may also contribute $3,000 to an IRA if the taxpayer is age 50 or older, they may contribute an additional $500 ($1,000 for a MEJ couple if both age 50 or older) to their IRA.
With respect to changes outside of the retirement arena:
* The welfare-to-work credit has been extended and includes wages paid to qualified individuals who started work in 2002 and 2003. The Work Opportunity Credit has also been extended through 2003. This offers a credit to employers who hire from targeted groups including high-risk youth, qualified veterans, and families receiving food stamps.
* The adoption credit is now permanent. Starting this year, the maximum credit and exclusion amount will increase to $10,000. The income limit will also increase based on modified adjusted gross income. Starting in 2003, a $10,000 exemption will be allowed for adopting a special needs child, regardless of whether the taxpayer has qualifying expenses.
* The standard business mileage rate for 2002 has been increased to 36.5 cents.
* The IRS has revised the survivor annuity benefits for the spouse or child of a public safety officer killed in the line of duty. Starting this year, such annuities are excluded from taxable income.
* And finally, there is even a tax break for some new car buyers who have purchased hybrid gas-electric cars, whether they itemize or not. Specifically, the IRS will allow a $2,000 deduction for people who have purchase the hybrid models Toyota Prius, Honda Insight, or Honda Civic during the model years 2000, 2001, 2002, and 2003. Taxpayers who bought hybrids in 2000 or 2001 can amend their returns to claim the clean-burning fuel deduction.
This article was contributed by Craig Habicht, President of Liberty Tax Service, 301-733-6990.