Tax Relief Act of 2001

The Internal Revenue Code has been amended (again!) with the ostensible goals of tax reduction and simplification. Most of our clients will see a modest tax reduction from reduced rates on ordinary income.

Simplification is nonexistent, in fact, reporting and planning complexities have been increased. U.S. Treasury Secretary O’Neill recently stated that his goal for the upcoming year is to simplify the Internal Revenue Code. One can only hope ...

Check out What's New for details.

SEP-IRA contribution limit increases to 25% on higher eligible compensation

This is a large benefit for self-employed workers, increasing the contribution limit from $25,500 to $40,000 per year. For more information see "SEP IRA contribution limit increased".

Optimizing Payments for Back Taxes

If you have an Installment Agreement with the IRS to pay back taxes you must specify how you want the payments to be applied. If you do not the IRS is free to allocate the payments to its advantage. It is to your advantage to apply payments to the oldest tax liability in order to minimize the accrual of interest. This is a new policy. Anyone currently making installment payments should include a letter of instruction to the IRS with their next payment.

Contact us for details, or read the Revenue Procedure text.

The Alternative Minimum Tax – Coming Your Way Soon

The Tax Relief Act does very little to remedy the AMT burden that will increasingly affect our clients. The combination of decreasing federal tax rates, constant or increasing state tax rates and an AMT income exemption that is not indexed for inflation will result in a projected AMT liability for 3,000,000 taxpayers in 2002.

Although the AMT exemption amount increased in 2002 by $4,000 for married filers ($2,000 for single filers) this will yield a negligible benefit for most taxpayers.

For an interesting report of the increasing burden of the Alternative Minimum Tax read the U.S. House of Representatives’ Joint Economic Committee’s report.

Generate Income From Your Stock Holdings

Do you own a stock that you intend to sell in the near future, especially if the price "picks up" at bit? Or a stock that has been very stable but you would be willing to sell at a higher price?

You may be able to generate current income in some cases by writing covered calls. See "Generate income from current stock positions" for more information.