Summary of Tax Law Changes for 2002
Below is a summary of selected Federal tax law changes applicable to Tax Year
2002. For a complete overview of changes in tax laws for the coming years,
please visit www.turbotax.com.
Lower Income Tax Rates
Applies to everyone! Tax rates were lowered again by 1/2% across the four
highest income tax rates. These rates are now 27%, 30%, 35%, and 38.6%. New 10%
tax rate is now applicable to the first:
·
$6,000 for singles
·
$10,000 for heads of household
·
$12,000 for married persons filing joint returns
401(k) and 403(b) Limit Increased to $11,000
Applies to taxpayers who participate in a 401(k) or 403(b) plan at work. The
maximum contribution allowable to these plans is $11,000 for 2002, or $12,000
for those persons age 50 or older by the end of the year.
IRA Maximum Deduction Increased to $3,000
Applies to taxpayers who want to make a deductible IRA contribution. The maximum
deductible contribution has been increased to $3,000, or $3,500 for persons age
50 or older by the end of the year.
IRA Deduction Phase-Out Increased by $1,000 for TY2002
Applies to taxpayers, covered by a retirement plan at work, who want to make a
deductible IRA contribution. If you are covered by a retirement plan at work you
can take an IRA deduction if your modified adjusted gross income is less than
$64,000 (married filing joint) or $44,000 (single or head of household).
Coverdell Education Savings Accounts Contribution Increased to $2,000
Applies to taxpayers interested in funding the future education of
beneficiaries. The maximum amount contributable per beneficiary per year has
been increased to $2,000 for 2002 from $500 in 2001. Withdrawals from education
savings accounts may be used to pay for elementary and secondary school
expenses. Further, contributors have until April 15 to make contributions
(changed from December 31 in previous years).
New Tuition Deduction
Applies to students and others who pay for college or other post-secondary
education. Qualified persons may now deduct up to $3,000 in expenses for tuition
and fees, regardless of whether deductions are itemized. Income limits will
apply: only taxpayers whose modified adjusted gross income is at or below
$130,000 (if married) or $65,000 (all others) may claim the deduction, and
married persons filing separate returns are not eligible at all.
New Educators Deduction of $250
Applies to elementary and secondary school teachers, counselors, principals and
aides. Qualified persons may now deduct up to $250 in expenses for books,
classroom supplies and computer equipment regardless of whether deductions are
itemized.
Maximum Adoption Credit Increased to $10,000
Applies to families incurring adoption expenses. The maximum adoption credit and
the maximum exclusion for employer-provided adoption benefits have been
increased to $10,000, up from $5,000 in 2001. Further, the income phase-out
range has been increased to run from $150,000 to $190,000.
Student Loan Interest Deduction Changed
Applies to students, former students and families with children in college. The
limitation allowing the deduction of only interest attributable to the first 60
months of loan payments has been eliminated. Further, the income ranges for
deductibility have been increased to $100,000 to $130,000 for married persons
filing joint returns and to $50,000 to $65,000 for all others.
New Credit for Qualified Retirement Savings Contributions
Applies to employees or self-employed taxpayers who make contributions to
401(k), IRA or certain other retirement plans. This new credit may be claimed by
taxpayers whose modified adjusted gross income isn’t over $50,000 (if married
and filing a joint return), $37,500 (heads of household) or $25,000 for all
others. The credit varies from 10% to 50% of the taxpayer’s total
contributions (up to $2,000 worth), based on adjusted gross income. New Form
8880 will compute this credit.
Foreign Earned Income Exclusion Increased
Applies to people whose tax homes are in foreign countries. The amount of
foreign earned income that can be excluded has increased by $2,000 for 2002. The
2002 limit is $80,000.
Standard Mileage Rate Increased (business)
Applies to individuals and businesses that use a car or truck for business
purposes. The optional standard mileage rate for the cost of operating a car,
van, panel truck, or pickup has been increased from 34-1/2 cents per mile in
2001 to 36-1/2 cents per mile for 2002.
Additional First-Year Depreciation of 30% (business)
Applies to businesses that acquire property and equipment for use in
business operations. The new 30% additional first-year depreciation allowance
applies to property placed in service in 2002.
Net Operating Losses Carryback Period Extended (business)
Applies to businesses incurring losses in 2002. Losses on tax returns from
business operations in 2002 may be carried back to offset taxes from the last
five years of returns (as opposed to two years under previous law). Tax offsets
may result in refunds of taxes paid in any of those five years.
Self-Employed Health Insurance Deduction Increased to 70% (business)
Applies to self-employed business owners who pay for health-related insurance.
The self-employed health insurance deduction is increased to a maximum of 70% of
health insurance expenses.
