Start Using Next Year's Tax Breaks Now Says H&R Block

Business Wire, March 14, 2002

Business Editors

SEATTLE--(BUSINESS WIRE)--March 14, 2002

Even though it is called the 2001 tax cut, the real payoff begins this year as more of the 441 tax law changes passed by Congress take effect according to Stephen Sprenger of H&R Block.

In order to gain the maximum benefit, Sprenger recommends you begin taking advantage of the new tax breaks now.

Here's a quick primer of areas that may offer you some tax savings on next year's return:

-- Increase your IRA or 401(k) contributions: The maximum annual contribution
for both regular and Roth Individual Retirement Accounts increases by $1,000 to
$3,000 and 401(k) limits are raised by $500 to $11,000 allowable. As you
increase your deductible contributions, you decrease your taxable income.

-- If you're over 50, play "catch-up": Those 50 and over are allowed to shelter
an additional $500 annually in an IRA or an additional $1,000 in their 401(k)
so they can "catch-up" on the amount they need for retirement.

-- Take advantage of increased limits for educational expenses: Even if you
don't itemize, you can take advantage of the $3,000 higher education deduction
for qualified taxpayers. Furthermore, the Coverdell Education Savings Accounts
(formerly Education IRAs) limits are increased from $500 up to $2,000, and can
be used for more types of education expenses. Elementary and secondary public
schools, private and religious schools, even extended day programs and computer
purchases may be eligible. Additionally, the income levels of those eligible
for these tax breaks has been increased.

-- Adopt a child and save more: The tax credit of adopting a child is increased
to $10,000 and the income levels eligible have been raised. Here's an
opportunity to help another person and help yourself at the same time.

-- Increase your financial gifts to family and friends: Since the annual gift
tax limit has been increased by $1,000, both you and your spouse could give
$11,000 each to as many people as you wish. You can make your family and
friends happy as you decrease your taxable estate.

-- Remember the estate tax rate has decreased and the exemption increased:
Before you give away too much, remember that the per-person exemption is now
$1-million (up from $675,000). The top federal estate tax rate decreased from
55 percent to 50 percent. This is an excellent time to revise your estate
planning.

These are just a few of the 441 tax law changes that were passed last year, resulting in a 10-year, $1.35 trillion-dollar tax cut. Obviously many qualifications exist for each change so you're well advised to talk to your tax advisor, says Sprenger.

H&R Block is a tax preparation service with more than 10,000 offices worldwide. Approximately one in seven U.S. taxpayers uses H&R Block's services. Stephen Sprenger, with H&R Block's Seattle office, is an Enrolled Agent certified by the IRS. He may be reached at 206/441-1040.