Got nothing or got too little.  Here are a few of the cases.  If the child will turn 17 in 2003, you got the credit in 2002 but will         not be able to claim it in 2003 - no check for you.  If your return was on extension, IRS had no return to look at - the full $1,000     credit will be claimed when we file your 2003 return.  If your income was too high, the credit was lost, but we may be able to         claim the full $1,000 if your 2003 income is smaller.  (The credit begins to phase out at gross income of $110,000 for couples or     $75,000 for single filers.)  If your income was too low to use the full credit, there is a complex calculation which might get some     of the credit back for you.  I'll need to know whether you received any advance payment.

 

    Got it - but won't qualify.  IRS based their calculations on your 2002 return.  Some separated parents claim the child in             alternating years.  If the child was on mom's return in 2002 mom got a check.  When dad claims the child for 2003 he gets a full     $1,000 credit.  IRS has said mom can keep the $400 she received!

    Another scenario - your 2002 income allowed the credit, but your 2003 will be so large the credit is lost.  You can keep the $400!

 

Check Your Records!  We must have the correct information on your advance rebate when we file!

Gains, Dividends, & Form 1099-DIV

 

The new law reduces tax rates on capital gains from 10% - 20% down to 5% - 15%.  It also gives the same low rates to dividend income.

New Rates = New Confusion!

It sounds simple.  When laws change there is a scramble by banks and brokers to learn new reporting rules.  Expect errors and corrected forms from banks and brokers.  Stock sales lead to capital gain/loss.  But the new rates apply to sales after 5/5/03.  Will your statement separate sales before and after the date?  Check the year-end statement carefully here.

 

Dividends get the new rates no matter when received.  But which kinds of dividends get the new rates?  Money market accounts pay you a dividend which is really interest.  Some foreign dividends don't qualify.  A mutual bond fund pays interest, but it's called a dividend.  IRS is still stewing over how to explain the rules.  Please bring the complete statement to our meeting.

 

Your 2003 Records - Get Ready in 5 Easy Steps

 

Want to save money?  Don't wait until the last minute.  Review your records in several short stints instead of one long marathon.

 

1.  Time and Place

You don't need much time to collect your tax information.  Give it 10 - 15 minutes now and then 10 minutes each week.  Pick a place to keep your records.  Gather last year's tax return, a few envelopes, your check registers, a scratch pad, and a calendar.

 

2.  Memories

Look back on 2003.       

Tax Return.    A quick look at last year's return will remind you of the things you need to collect. 

Calendar and Register.      Do a review of 2003.  A calendar and your check registers will help.  Look for tax deductions or special events that affect your taxes.     

Scratch Pad.    Be sure to keep notes on items that jog your memory.

 

3.  January Mailbox

Watch for those envelopes saying "Important Tax Information."

 

W-2's.    Read each one before putting it away.  If it looks wrong contact your employer.

1099's.   There's a 1099-INT or 1099-DIV for any account paying interest or dividends.  Did you find all of them? 

Other 1099's.  A real estate sale is on Form 1099-S.  For stock sales it's 1099-B -- remember, before or after 5/5/03 is important for sales.  Pensions are on 1099-R.  There are several others.  Be alert.

Form 1098.  Mortgages are on Form 1098.  If you have a private mortgage, find your payment book. If you bought the property from the lender, you need their name and tax I.D. number. Form 1098-T reports tuitions leading to education credits.  Student loan interest is on Form 1098-E.

Other Income.  You may see forms for unemployment benefits, state tax refunds, prizes, awards, or gambling winnings.

Partnerships, etc.  Forms K-1 from partnerships, trusts, estates, and corporations arrive later.  We can do the rest of your return now.  Mail these forms to me when they arrive.

 

After January.  Most forms are sent out by January 31.  In February figure out what's missing.  Missing a W-2?  Grab your phone!  Contact the employer.  If you can't locate the employer, find your pay stubs.

 

Late Information.  If some information arrives late, mail it to me.  If receipts for deductions are missing, make a list of your best recollection, sign and date the list, and keep it with your records.  This can help if you are audited.

 

4.  Special Events.

What was special in 2003?  A birth?  Death?  Bought property?  Refinanced your home?  Please bring complete information and documents.

 

5.  Weekly Review.

This takes 5-10 minutes.  How's your pile looking?  Are things still sorted neatly?  Check against your list of what's missing - add entries as needed.  Take a quick look at a calendar.  It may help you to recall a deduction you forgot. 

Those few minutes over several weeks are more effective than one long session.  Your subconscious will have time to work on things you missed.  It's surprising what details you will remember if you give time a chance to help you.

Final Review.    Put everything in order.  Check your list.  Write down any last-minute questions.

Double Win!    There are bonuses:   

        1.  Your effort will pay you back in the form of tax savings. 

        2.  Saving time means my fee will be as low as possible.  I hope we have extra time for planning.  I'd like to see you save even         more next year.!

 

GOT EVERYTHING WE NEED?

 

Here's a list of things most often forgotten.  Compare it to your own list of missing information.

 

     Do You Need to Send 1099s?

 

You may need to send Form 1099 to someone.  There are two cases:

You must issue Form 1099 to the other party by February 2.  Copies must go to the IRS by March 1.  There are penalties for not sending them!

 

Business/Rental.  If you paid $600 or more to anyone during 2003 you may need to issue a form.  Applies to "business" expense only - payment for personal expenses need not be reported.  Nor do you need to report payments to a corporation.

 

Was any part of the payment for services?  IF so, you must report the total amount on Form 1099.  Rents you pay to a manager, but not to the landlord are excepted.  Same if you pay for merchandise alone.  Check your records for repairs, painters, consultants, builders and the like.

 

Get name, address, and Tax I.D. Number.  Call or use Form W-9.  If someone gives his/her name, get a Social Security Number (like 555-55-5555).  If a business name is ;used, get an Employer I.D. Number (like 55-5555555).

 

Rental Managers.  A property manager who runs your rental issues Form 1099 to you reporting the rents.  Ask if the 1099's for service people were sent.  The law here is not clear, so play it safe.  Ask if the issued a 1099 to themselves  for what you paid them.  If not, you must do it!

 

Nominees.  Limits are lower.  If you pay $10 or more to another, you may be liable for the form.  You file the same type of 1099 as you received, but you are filing as a "middle man."

 

Getting the Forms.  I can help, or you can get forms from IRS and do them yourself.  If you need my help, please call early!  My tax season is hectic and the February 1 deadline comes up quickly.  If you need forms from IRS you can reach them at 1-800-829-3676.  You'll need Form 1099 and Form 1096.

 

Business Breaks For 2003

 

The law changes how businesses deduct the cost of new equipment.  Normally, we "write off" supplies.  Equipment is "depreciated" over a period of years.

 

Expensing Provisions.  You may write off up to $100,000 worth of new machines, fixtures, or equipment used in a business.  This does not apply for businesses which buy $400,000 or more of such items in the year.  Nor does it apply to real estate or to rental properties.

 

Depreciation Increases.  For the same machinery and equipment as above we have much larger figures for first-year depreciation.  If you don't use the expensing provision, your first-year deduction used to be 15% - 20% of the cost of the equipment.  For 2003 and 2004 the figure can reach 60%.  Several options allow great flexibility and planning.  The deduction in later years is, of course, much smaller.

 

Vehicles - Higher "Caps".  Congress wants to limit deductions on luxury passenger cars used for business.  They "capped" the amount of depreciation allowed for vehicles.  To allow more first-year depreciation on cars the "caps" were increased.  The first-year "cap" was $3,600 just 2 years ago.  This represents the allowance for a car costing $15,300.  A $40,000 luxury car is held to the same "cap".  For 2003 the first-year "cap" is $7,660 for cars placed in service by 5/5/03.  For cars placed in service after 5/5/03 the "cap" jumps to $10,710.

 

Drive Your SUV Through a Loophole?

 

Buy an SUV, use it for business, deduct the full price in the first year!  You've seen this claim in a newspaper or heard it on talk radio.  It's true.

 

What's this all about?  Let's back up a bit.  The folks at IRS are the police force for the tax system.  They don't like to deal with "mixed-use" property - items used both for business and personal purposes.  Homes, cars, and computers can all have such a mix of uses.  IRS prefers a nice clean "this is business, this is personal" set of rules.

 

Limits for "passenger cars".  In 1984 Congress put "caps" on the depreciation deductions for "passenger cars".  A key rule says "passenger car" is a vehicle of Gross Vehicle Weight (GVW) under 6,000 pounds.  GVW is a technical term.  A vehicle's GVW is printed on the sticker on the driver's door.  In 1984 we liked small cars.  Today's drivers seem to prefer monsters.  Many SUVs and vans are well over the 6,000-pound limit.  Over 40 vehicles listed at www.edmunds.com exceed the limit, but are used as family vehicles.  They are not "passenger cars".  The "caps" do not apply.  For 2003 you could deduct the first $100,000 of cost for such a vehicle.  That's enough to cover the full cost (unless you buy a Hummer!).

Warning:  I am not suggesting you buy one of these vehicles.  That's an economic decision I'll leave to you.  This write-off is not a free ride - depreciation is a two-edged sword.  If you claim depreciation, you must report the eventual sale of the vehicle.  If you reduce a vehicle to Zero by depreciation, then sell for $10,000 a few years later you have a $10,000 gain!  And if business use falls below 51% within 5 years there is some recapture of the early write-off!  Not free at all.

Law Might Change!  As I write, Congress wants to limit deductions on these vehicles to $25,000.  There is also a move to re-write definitions using GVW figures more in line with today's vehicles.  Please remember - Congress didn't want to open a loophole, but to protect business vehicles from the caps. Congress sees business vehicles as ones for which "facts and circumstances indicate there would be only minimal personal use". 

If the law is changed, will it be retroactive?  I don't know.  As of today a $50,000 SUV used 80% for business can get a $40,000 instant deduction.  This could change at any time - especially if your Senator listens to the same radio station as you!

 

Tips For You

 

Social Security Update.  Workers face the steepest taxes ever in 2004.  The earnings base jumps all the way to $87,900.  A worker earning this much will pay a whopping $6,724.35 to Social Security.  And the boss will match it!

 

Retirees get a 2.1% increase in benefits - it was 1.4% a year ago.  Medicare premiums paid by retirees will jump to $66.60 from $58.70.

 

Mileage Rate Increase.  You can claim a deduction of 36 cents for each business mile driven in 2003.  IRS says the rate will be 37.5 cents for 2004.

 

Hybrid Car Deduction.  You can deduct $2,000 if you buy a hybrid car.  They combine a gasoline engine and an electric motor.  To date IRS has certified Toyota Prius for 2001-2004, Honda Civic Hybrid for 2003, and Honda Insight for 2000 - 2002.  You need not use the car for business.  The deduction is allowed whether you itemize your deductions or not.  However, a full deduction is allowed only for 2003.  Purchases in 2004 get $1,500, then $1,000 in 2005, $500 in 2006, then nothing.

 

Military Pay.  Members of the Armed Forces who served in or near Iraq get a combat pay exclusion on the W-2.  If you have such a W-2, please check it over carefully before giving it to me.

 

Last-Minute Tax Savers.  Here are a few moves you can make late in the year to trim your tax bill.  They involve moving deductions from 2004 into 2003.

 

    Contributions.  If there are contributions already scheduled, consider if you can afford to make them this year.  Get the savings     now.  If you're thinking of cleaning out the garage, do it now.  Call your favorite charity, make a good list (possibly even a couple     of snapshots!), and get your deduction in 2003.

 

    Business/Work Supplies.  If you buy office supplies, think about stocking up in December.  Load up on paper, toner or printer     cartridges, envelopes, maybe even some extra postage stamps.  You can also buy business fixtures or equipment, but must be     able to show the items were actually used in 2003.

    Landlords/Businesses.  Are there maintenance items you've been putting off?  You get the deduction in 2003 if you do the work     in 2003.  Consider painting, carpet cleaning, replacing screens or furnace filters.

 

    Timing of Income/Expense.  An expense item is counted when you pay.  Sign the check.  Sign the credit card slip.                  Postmark the mail.  When funds leave your control, payment has been made.

    With income, you cannot simply wait to cash a check - it's yours right now.  (You can delay billings, though!)