CPA Client Bulletin articles from August 2002

CPA Client Bulletin archives from August 2002

New carryback rule for net operating losses (NOLs). (New Rules for Business).(Brief Article)
August 1, 2002... Prior law allowed taxpayers with a business loss for the year to carry back the loss and offset it against income in the two prior tax years (three years for NOLs arising from certain casualty and theft losses) to get a refund. The new rule...

Additional depreciation. (New Rules for Business).(Brief Article)
August 1, 2002... For business assets acquired after September 10, 2001, and before September 11, 2004, taxpayers can take additional depreciation in the year the property is placed in service. The additional first-year depreciation is 30% of the adjusted basis...

Increased Section 179 deduction. (New Rules for Business).(Brief Article)
August 1, 2002... Under Internal Revenue Code section 179, you can choose to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. For tax years beginning in 2000, that limit...

No basis increase for S corporation debt-discharge income. (New Rules for Business).(Brief Article)
August 1, 2002... Last year, the Supreme Court said that if an S corporation becomes insolvent, debt forgiven by its creditors--even though not taxable as "cancellation-of-debt income"--was still income for purposes of increasing the basis of an S owner's stock....

Cash accounting rules relaxed. (New Rules for Business).(Brief Article)
August 1, 2002... Prior to an IRS revenue procedure issued earlier this year, only businesses with average annual gross receipts of $1 million or less could use the cash method of accounting. The new procedure provides that, for tax years ending on or after...

Standard mileage rate. (New Rules for Business).(Brief Article)
August 1, 2002... For 2002, the standard mileage rate for the cost of operating your car, van, pickup or panel truck is 36.5 cents a mile for all business miles.

Social Security and Medicare taxes. (New Rules for Business).(Brief Article)
August 1, 2002... The maximum amount of 2002 wages subject to the Social Security tax is $84,900. However, all covered 2002 wages are subject to the Medicare tax.

Accrual method of accounting for service businesses. (New Rules for Business).(Brief Article)
August 1, 2002... Under previous law, if you performed services and used an accrual method of accounting, you did not accrue income that, based on experience, you expected to be uncollectible. Beginning in 2002, this rule applies only if you perform services in...

Welfare-to-work credit and work opportunity credit extended. (New Rules for Business).(Brief Article)
August 1, 2002... The welfare-to-work credit and the work opportunity credit (WIN), that were scheduled to expire after 2001, have both been extended to include wages paid to qualified individuals who begin work for you in 2002 or 2003.

Tax break for teachers. (Changes for Individuals).(Brief Article)
August 1, 2002... For 2002 and 2003, teachers and other professional educators of kindergarten through grade 12 can deduct up to $250 of unreimbursed classroom expenses, up to $250 annually "above the line." Although unreimbursed expenses were already...

Personal credits still allowed against AMT. (Changes for Individuals).(Brief Article)
August 1, 2002... A provision that allowed certain nonrefundable credits to reduce both your regular tax and alternative minimum tax (AMT) was scheduled to expire after 2001. This provision has been extended and will be in effect for 2002 and 2003.

Child and dependent care expenses. (Changes for Individuals).(Brief Article)
August 1, 2002... In calculating the child and dependent care credit, your spouse will be treated as having at least a minimum amount of earned income for any month that he or she is a full-time student or not able to care for himself or herself. For 2002, these...

Adoption credit. (Changes for Individuals).(Brief Article)
August 1, 2002... Starting in 2002, the adoption credit for both special-needs and non-special-needs children increases to $10,000 (previously $6,000 and $5,000 respectively). The income phase-out range has also increased. Beginning in 2002, the credit will...

Estimated tax for high-income taxpayers. (Changes for Individuals).(Brief Article)
August 1, 2002... For installment payments in tax years beginning in 2002, the estimated tax safe harbor for high-income individuals (other than farmers and fisherman) has been modified. If your 2001 adjusted gross income was more than $150,000 ($75,000 if...

Individual rates go down again.(Brief Article)
August 1, 2002... Individual Rates Go Down Again A significant provision of EGTRRA was a reduction of the marginal tax rates for most taxpayers. The legislation reduces all rates over time as follows. Calendar Current Current Current...

Employer-provided educational assistance. (Tax Breaks for Education).(Brief Article)
August 1, 2002... The tax-free status of up to $5,250 of employer-provided educational assistance benefits each year for undergraduate-level courses was scheduled to end for courses beginning after 2002. This benefit has been extended indefinitely. Beginning in...

Education deduction. (Tax Breaks for Education).(Brief Article)
August 1, 2002... Beginning in 2002, you may be able to deduct qualified tuition and related expenses paid during the year for yourself, your spouse, or a dependent, even if you do not itemize deductions. Qualified expenses do not include room and board. For tax...

Coverdell Education Savings Accounts. (Tax Breaks for Education).(Brief Article)
August 1, 2002... Starting in 2002, the annual contribution limit for a Coverdell ESA (formerly known as an Education IRA) increases from $500 to $2,000. Also starting this year, contributions are allowed from corporations, tax-exempt organizations, and other...

Qualified tuition programs (QTPs). (Tax Breaks for Education).(Brief Article)
August 1, 2002... Beginning this year, distributions from state-sponsored qualified tuition programs used for higher education are excludable from gross income. Also, private higher-education institutions can now offer prepaid tuition credits or certificates...

Student loan interest deduction. (Tax Breaks for Education).(Brief Article)
August 1, 2002... Taxpayers are allowed an annual above-the-line deduction of up to $2,500 for student loan interest paid. Beginning in 2002, interest on student loans for higher education may be deducted whenever paid and regardless of the age of the loan....

Estate and gift tax changes.(Brief Article)
August 1, 2002... A number of EGTRRA provisions are effective in 2002: * The top gift, estate and generation-skipping transfer (GST) tax rate is reduced from 55% to 50%. * The exemption amount increases from $675,000 to $1,000,000. * A unified...

Higher 2002 per-diem travel rates.(Brief Article)
August 1, 2002... Many companies, rather than keeping track of receipts to substantiate deductions, choose to use the IRS-approved per-diem rates. For 2002, the IRS has announced an increase in its approved "high-low" rates, and changes in the high- and low-cost...

Higher contribution limits for IRAs, employer plans. (Retirement Plan Provisions).(Brief Article)
August 1, 2002... For 2002, taxpayers may contribute up to a combined total of $3,000 (up from $2,000 for 2001) to all IRAs, whether traditional or Roth, or both. Also, the 2002 elective deferral limit for 401(k) plans, 403(b) annuities (for employees of public...

Higher contribution limits for taxpayers 50 and over. (Retirement Plan Provisions).(Brief Article)
August 1, 2002... Taxpayers who are at least 50 years old by the end of this tax year may contribute even more to certain retirement plans. For IRAs and elective deferrals to SIMPLE plans, the extra amount for 2002 is $500, resulting in a total taxpayer...

Permissible rollovers. (Retirement Plan Provisions).(Brief Article)
August 1, 2002... Before EGTRRA, tax-free rollovers of distributions from one type of retirement plan to another were narrowly limited. Beginning in 2002, however, taxpayers have greater freedom in moving between plans. Now, qualified plans, 403(b) annuities,...

Faster vesting for matching contributions. (Retirement Plan Provisions).(Brief Article)
August 1, 2002... As a result of EGTRRA, employees now gain a nonforfeitable right to an employer's matching contributions to their defined contribution plan more quickly. For plan years starting in 2002, the plan has the option of fully vesting employees after...

Saver's credit. (Retirement Plan Provisions).(Brief Article)
August 1, 2002... Beginning in 2002; and through 2006, if you make eligible contributions to certain employer-sponsored retirement plans or to an IRA,. you may be able to take a tax credit on your personal return. The credit may be as high as $1,000 ($2,000 on a...

Tax incentives for New York Liberty Zone. (Tax Breaks for those Affected by Terrorism).(Brief Article)
August 1, 2002... Two new tax laws provide tax benefits for those affected by terrorism. First, JCWAA provides tax breaks for the parts of New York City damaged in the terrorist attacks on September 11, 2001. These benefits apply to the newly created New York...

Tax relief for those affected by September 11 events. (Tax Breaks for those Affected by Terrorism).(Brief Article)
August 1, 2002... In addition to the New York Liberty Zone tax benefits, the Victims of Terrorism Tax Relief Act, signed by President Bush in January 2002, provides both income and estate tax breaks for two groups of individuals: (1) those who died from injuries...

Tax calendar.(Brief Article)
August 1, 2002... AUGUST August 12 Employees who work for tips. If you received $20 or more in tips during July, report them to your employer. You can use Form 4070. August 15 Individuals. If you have an automatic four-month extension to file...

Don't look now--another tax act!
August 1, 2002... Still absorbing the many changes made last year? Now there's more! Many of the changes made last year by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) have 2002 effective dates. The centerpiece of this year's federal...