Make a savings game plan
  If you are going to be out of town this summer, consider renting your home while you're gone.  The IRS allows you to receive up to 14 days of rental income per year completely tax free.

  If family members need college funds, check out state tuition programs or "Section 529" plans.  These plans let you transfer wealth out of your estate and into an account your child or grandchild can use for college.  An added benefit:  Qualified withdrawals from state tuition programs are tax-free.
 
  If you own substantial assets, review your gifting program.  Getting assets out of your estate lowers its value for tax purposes.

  If your estate planning documents were prepared prior to the 2001 Tax Act, the wording may need to be changed to take advantage of the higher exemption limits allowed for 2002.

  If you volunteer to help a qualified charitable organization, keep track of your expenses.  You can deduct 14 cents per mile for charitable driving, as well as your out-of-pocket expenses, if you itemize your deductions on your income tax return.

   Saving is like exercising.  We know we should do it, but many of us give up too quickly because results are not immediately apparent.  Yes, just as exercise is important for our physical well-being, saving is important for our financial well-being.

  The compound interest effect is often referred to as the eighth wonder of the world.  This effect causes small amounts of periodic investments to grow substantially over time.  For example, cash invested at 8% interest can double in just nine years.  The key to using this tremendous wealth-building tool is to start early, commit to regular deposits, and be patient.

  How much should you save?  Your target should be to save at least 10% of your after-tax income each year.  When calculating your savings, consider all sources:  retirement plan contributions, principal payments on your mortgage, and other investments.  While a 10% target may seem ambitious, it is achievable if you have self-discipline.  For example, if your boss announced a 10% pay cut, you'd probably find a way to make ends meet.  So announce your own pay cut and start 

 saving today.

  How do you get started? Saving money doesn't take complicated strategies, just discipline and planning.  Review your spending to see where your income is going.  Look at your expenses and think creatively about ways to cut each one.  Don't go shopping unless your really need something.  Comparison shop for the the things you need:  goods, services, insurance, interest rates - everything.  Consider refinancing your mortgage at a lower interest rate to lower your payments.

  Look for ways to save at work. If your employer offers a flexible spending account, you can pay child care expense, out-of-pocket medical expenses, and certain insurance premiums with pretax dollars to stretch your wages.  If your employer offers a voluntary retirement plan, participate to the maximum extent possible.  If you aren't participating, you are forfeiting an opportunity to reduce your taxes and your may be missing out on potential employer matching contributions.

  Pay yourself first.  Arrange to have savings automatically deducted from your paychecks or set up an automatic transfer from your checking to your savings account.  To strengthen your resolve, put your savings where they're hard to reach.  For example, retirement plans are difficult to access before retirement without incurring large penalties.  Bank certificates of deposit charge early withdrawal penalties.

  To reap financial security, you must plant the seeds of savings.  The earlier you start the richer the harvest.  If we can be of assistance, please call.

 
What's new in taxes...
Retirement distribution rules change again
  Last year the IRS proposed new rules that simplified the way you're required to withdraw retirement money.  Recently the IRS issued its final rules for retirement distributions.
  The final rules further simplify the distribution requirements.  They also lengthen the life expectancies for the IRS mortality tables used to calculate required distributions.  Thus owners of IRAs, 401(k)s, and other retirement plans can stretch out their required withdrawals over a longer period, beginning this year.

Costs to fight obesity may be tax-deductible
  The costs to fight obesity may qualify as a medical expense according to the IRS.  This deduction only applies to individuals under a doctor's orders to lose weight for health reasons.  It does not include the cost of diet food or the costs of losing weight for your general health or appearance.  
  You can deduct medical expenses if you itemize your deductions and to the extent that your medical expense exceed 7.5% of your adjusted gross income.  Also, you can amend returns back to 1999 to cash in on this tax break.

Check out these new tax breaks
  Earlier this year Congress passed the Job Creation and Worker Assistance Act of 2002.  This new tax law is designed to boost the economy, provide assistance to New York City, and correct oversights in last year's tax law.  The most significant benefits go to businesses.  Here are some of the ways the new law might affect your business.

    Bonus depreciation allows you to claim an extra first-year deduction for 30% of the cost of new equipment purchased for your business after September 10, 2001, and before September 11, 2004.  Bonus depreciation applies to most kinds of business equipment and some leasehold improvements, but not to real estate.
  Some businesses qualify for a Section 179 deduction which allows the business to expense a limited amount of equipment costs in the year of purchase.  The 30% bonus depreciation is in addition to any Section 179 deduction and regular first-year depreciation.
  For luxury autos (those costing more than $15, 300) purchased after September 10, 2001, the 

 first-year depreciation limit jumped to $7,660.  
  Because bonus depreciation is retroactive for purchases made after September 10, 2001, this deduction applies to 2001 returns.  If you didn't deduct bonus depreciation on your 2001 return, consider filing an amended return to claim the extra deprecation.  This depreciation provision lasts for three years, so it's worth doing a careful review of your equipment purchasing plans for the next few years.

  If you had a tax loss in your businesses in 2001 or lose money in 2002, you can carry back the loss to offset income in the previous five years instead of the usual two years.  That means you may be able to use the loss to offset taxes you paid in earlier years and obtain a refund.

  Several tax credits were reinstated, including the welfare-to-work credit, the work opportunity credit, and the electric vehicle credit.

  If you'd like to discuss how this new tax law affects your business, call us. 


Taxing facts...
  According to the Tax Foundation, April 27 was Tax Freedom Day for 2002.  The nonprofit organizatin says the average American worked as follows to pay taxes this year:
  • 51 days to pay federal, state, and local income taxes.
  • 29 days to pay payroll taxes.
  • 18 days to pay sales and excise taxes.
  • 11 days to pay property taxes.
  • 8 days to pay their share of corporate income taxes ultimately collected from consumers.

  That's a total of 117 days - two days less than in 2001 and four days less than in 2000.  The Foundation attributes this drop to the income tax cuts from the 2001 Tax Act and the slow economy.

All material presented in this newsletter is for general information only and should not be acted upon without further details and/or professional assistance.