Benjamin Franklin once said that two things were inevitable in life: death and taxes. And the nice thing about death is that you can hear John Lennon and George Harrison play music again, a combination of “Imagine” and “My Sweet Lord”.
We started out with a debate on which year started the third millennium and ended up in a fight with an enemy that wanted the world to exist in the first millennium.
We started out with Where’s Waldo? And ended up with Where’s Osama?
The year started with George Bush making our clean water policy very theatrical. A little “Arsenic and Old Lace”.
The Democrats stared with a domestic policy consisting of waiting for the 98 year-old Senator Jessie Helms to die. When that didn’t work they got Senator Jeffords to switch political parties. They convinced him that the Democrats give better deductions.
The President gave the Taliban 44 million dollars to join our war on drugs. Then froze their assets to get them back.
When the Bush presidency approval rating slipped into the thirties, a Democratic Senator was heard to say that the chance of George Bush being re-elected was equal to four planes being hijacked on the same day.
Gary Condit found his own way to combat voter apathy.
Al Gore grew a beard and when people close to him realized that both he and Bin Laden were 6ft. four, they put one and one together and demanded the $25 million reward for capturing Bin Laden. To avoid further embarrassment, Al began to slouch.
Trivial Pursuit came out with a terrorist cell version.
The most patriotic movie star award was given to Robert Downey Jr. for spending the entire year on “high alert.”
To counter the terrorists, fundamentalist tax consultants started a religion that when one goes to heaven he or she is served by 74 tax auditors.
There was a reward of 25 million dollars for anyone killing Osama Bin Laden. If it’s an American, it is a taxable event. It might be more cost efficient joining our war on drugs.
O.J. Simpson offered to expand his search for the killer of Nicole to include Osama Bin Laden. “You never know. He could be hiding in the Florida Everglades. There are a lot of Ben Lodins in Miami. And where was Osama the night that Nicole and Ron Goldman were killed?”
A downtown Los Angeles homeless shelter declared war on America hoping to be bombed by food.
To support the idea the concept that George Bush was indeed the “education” president, American students scores improved dramatically in geography after September 11th.
On a more ominous note, in a cave in Tora Bora, we found a drawing of a crude nuclear weapon and a copy of our tax system. If they can understand our tax system, nuclear weapons would be a piece of cake.
TAX HIGHLIGHTS AND LOWLIGHTS:
The Economic Growth and Tax Relief Reconciliation Act of 2001 is a complex piece of legislation. There are phase in and phase out provisions that should keep us all busy for the next ten years. For the rich it even provides a perfect year to die. 2010. That is the year Estate Tax is abolished and then returns in 2012. Osama may be holding out till then.
There is now a ten per cent tax rate. Most of us have already received this in the form of a tax rebate. This did not make up for the deficit for those who invested in the stock market. If you did not receive your rebate and you didn’t owe taxes for previous years, you should get the rebate in your 2001 tax return as a tax credit.
All tax brackets above 15% were lowered by ½ of one per cent. And next year it’s another ½ of one percent. So you can defer ordinary income to future years to take advantage of lower rates. For example, a taxpayer who can delay receipt of $100,000 of commission income from December 2001 to January 2002, can save $500. A lower income salesperson can delay receipt of $100 and save 50 cents.
Children are worth more. Starting in tax years beginning in 2001 to 2004, there is a $600 Child Tax credit for those children under 17. This is $100 more than last year. This doesn’t apply to college students whose tuition has gone up. My children know who they are.
The personal exemption has gone up to $2900. I actually think you’re worth more.
IT MAY BE BETTER TO GIVE THEN RECEIVE but it’s harder to substantiate. Charitable contributions of $250 or more must be substantiated in order to be deductible. You need to have a letter from the charity. A canceled check is not enough.
THOSE RECEIPTS FROM GOODWILL may not be enough. To claim a deduction of more than $500 of a non-cash item (or group of items), the taxpayer must keep information documenting how and when the property was acquired and its basis or cost. So keep those underwear receipts. The National Council of Jewish Women will give you an itemized receipt. To claim a deduction of more than $5,000 for the gift of a non-cash item or group of similar items, you must have an appraisal from a qualified appraiser. So if you’re giving away ten thousand dollars worth of underwear, it may be easier if you give it to two charities.
DRIVING YOURSELF CRAZY KEEPING TRACK OF MILEAGE DEDUCTIONS. Medical driving is now 12 cents a mile. It’s fourteen cents a mile for charity. It’s 12 cents for moving and 34.5 for business. So if you drive to the Holy Land for medical and business reasons, you may not have to pay taxes.
ESTATE TAX PHASING OUT. The exclusion is going up from $675,000 to $3.5 million dollars by 2009. In 2010, there will be no estate tax. 2011 it will go back to $1 million dollars. I can see Dr. Kevorkian being sprung in December of 2010.
For examples of estate taxes under the old and new law, go to www.deathandtaxes.com. Note: Only the richest 2%(49,870) of Americans paid estate tax in 1999. 50% of the estate taxes paid are paid by about 3,000 people who die with taxable estates of $5 million.
SCHOOL DAYS. GOOD OL’ GOLDEN TAX RULE DAYS: Even though Clinton is gone, there is still a place called Hope. It’s the Hope Credit for the first two post secondary years. This is up to $1500 credit covers dollar for dollar tuition and fees for the first $1,000 of expenses and 50% of the second $1000. There is a phase out between $80,000 and $100,000 AGI if married and half of that if single or file head of household. This is for you and your children.
There is also a lifetime earning credit. This is for 20% of all tuition and fees. The classes must be taken at a school eligible for Federal aid. There is a similar AGI phase out.
Starting in 2002, there will be a college education expense exclusion. It will be up to $3,000. Now if you can only find a college that will fit this exclusion.
AND FOR THOSE OF YOU WHO HAVE CHILDREN, NOT YET IN COLLEGE. The best financial decision is have them learn a trade. But if you insist on having them go to college, there is a qualified state tuition program. Also called a 529 plan. If interested the best information can be found at www.collegesavings.org.
An educational IRA by any other name can still be used. Sweet. Finally the educational IRA will have a name change. Finally. Since it’s never been an individual retirement account. For 2002, it will be called the Coverdell Educational Savings Account. It was going to be named after me but I thought that would be silly. You will be able to put in $2,000. Also the moneys can be used for K through 12 expenses. That’s private school, tutoring, and computers. The phase out has also been increased. The rules are different in 2001. The limit is still $500. The 2000 educational IRA must be opened before 12/31/01. The Coverdell Educational Savings Account can be opened by 4/15/03.
Of course if you can understand all these education credits, you may not need to go to school.
A MAN’S HOME MAY BE HIS BEST DEDUCTION. Investing in a principal residence can still be the best deduction there is. A taxpayer may exclude up to $250,000 ($500,000 if you are married) of the gain realized on the sale or exchange of a principal residence. You must have lived in it for at least two of the previous five years. Your principal residence is the one you live primarily in. There is currently a court case to see if a series of caves can be considered one principal residence. It will decided by a foreign tax tribunal.
CONGRESS REDEFINES COST OF A LUXURY CAR: It is now $15,400. It’s gone down since last year. In Afghanistan, any car is a luxury. If you have a van or truck that’s over 6000 pounds Gross Curb Weight, you can treat it tax wise like a piece of equipment.
The expensing limitation for all pieces of equipment is $24,000 for both 2001 and 2002. The Republicans are trying to increase this limitation in the new tax bill that is stalled in Congress. So stay tuned.
PENSIONS AND OTHER PEOPLE NAMED IRA. For awhile they thought about renaming the IRA and getting corporate sponsorship. But it doesn’t look like the Enron IRA is going to work.
Starting in 2002, the IRA contribution will be changed for the first time since 1982. Starting in 2002, the limitations will be $3,000 a year. And if you’ve attained the age of 50, there will be a $500 catch up. This catch up is true for SEPs and 401Ks. For those plans the catch up is $1,000. For those who are still trying to catch up from the stock market dive, it will take more than this.
Starting in 2002 to 2006, there will be a new nonrefundable credit for those lower income people who wanted to have a retirement account. As a note, lower income people can afford luxury cars. The maximum annual contribution eligible for the credit is $2,000. Only joint returns with AGI of $50,000 or less, head of household returns of $37,500 or less and single returns of $25,000 or less are eligible for this credit. This is for 401k plans, 403 B, 457 plan, Simple, Sep, IRA and Roth IRAs. There is a phase out on the credit rates.
TEACHER’S FINALLY GET CREDITED. There is now a California teacher retention credit. It allows credentialed teachers who teach in a qualified education facility for at least four years a credit based on their years of service.
War and Peace is 660,000 words. The Bible is 774,746. The Internal Revenue Code is over 2.8 million words. And the code is a work in progress. Well maybe not progress.
END OF THE YEAR TAX PLANNING? Use your credit cards for charitable and business related deductions. Since tax rates are going down, your deductions will be worth more in 2001.
There is an interesting strategy for those of you with large losses in 2001 and can’t use them because of the $3,000 limitation. Call us.
BUSINESS MANAGEMENT? We have been offering this part or full service for the past nine years. We can pay your bills, invoice your clients and keep your books. We handle both Quicken and Quickbooks. We even do Windows. 2001 that is.
ELECTRONIC RETURNS? We will be able to file your returns electronically next year. Beam me up, Scotty.
Our offices are already on high alert. Though the only terrorist act we’ve discovered is the L. A. City Business Tax. Dom has questioned her daughter Alyssa but the only crime she’s committed is terminal cuteness. Jim misses nothing. Your information is safe with him. Hadas is part of our fashion police. No men dressed in burkas will get by her. Mercy gives no mercy except for your payroll and paperwork. We have a new operative, Chuck. He’s a CPA but that’s only one letter away from being CIA, so we feel protected. And Patty is going undercover in June. She’s getting married. Since she’s engaged, it’s time we become engaged to you.
In order to protect you and ourselves, our insurance company requires an engagement letter. It just goes over what our services are and what they’re not. Somehow it takes five pages to do that. So come in ten to fifteen minutes before your appointment so you can read it or you can find it on our website or we can mail it to you. It’s shorter than War and Peace and we use some of the same words Tolstoy uses. It’s worth reading.