- The Washington Times - Tuesday, January 14, 2003

The news for taxpayers preparing their 2002 returns is a bevy of new incentives to save for college and retirement, to file returns electronically and to plan for a more secure financial future. Most taxpayers have received New Year's greetings from the Internal Revenue Service in the form of packets of income-tax forms or brochures on how to prepare and file forms online. Later this month, taxpayers will receive their W-2 forms summarizing last year's wages.
New Democratic and Republican tax-cut proposals don't affect the 2002 tax returns due April 15, but many taxpayers will see changes this tax season as a result of the complex, $1.35 trillion tax cut enacted in 2001. In fact, change will be the rule for the decade as the law's 441 provisions are phased in each year through 2010.
For 2002, a new deduction is available for college tuition and fees, and less paperwork is needed for reporting dividend and interest income. Lower-income taxpayers will find a new credit for retirement savings, and lower-income working parents will find it easier to take a special credit to offset payroll taxes. Unlike deductions, which reduce the income on which tax is figured, credits reduce your tax dollar for dollar and are subtracted directly from tax owed.
Taxpayers who prepare their returns using computers will find it easier and cheaper to file, thanks to an agreement between the Internal Revenue Service and some online tax preparers.
Not all the news is good. People who held on to losing mutual fund shares might be shocked to learn that they nevertheless could owe capital-gains taxes on those losers. Homeowners who have taken advantage of 2002's record-low interest rates to refinance mortgages need to be careful as they deduct mortgage costs.
Guides to the new tax provisions include IRS Publication 17, "Your Federal Income Tax 2002," and Publication 553, "Highlights of 2002 Tax Changes," available online at www.irs.gov or by calling 800/829-3676 (800/TAX-FORM).
Failure to keep up with each year's available tax deductions comes at a steep price. The General Accounting Office, Congress' investigative arm, estimated that 2.2 million taxpayers overpaid their 1998 taxes an average of $438 per return a total of $945 million because they took the standard deduction instead of itemizing real estate taxes, charitable contributions, personal property taxes, mortgage interest, and state and local income taxes.
Many taxpayers received bigger-than-usual refunds on their 2001 taxes, mostly because of a lowering of tax rates and expanded child tax credits. The $500-per-child credit went to $600, and many parents were able to take an additional refundable child tax credit that decreased as income rose.
The Treasury Department said more than 600,000 taxpayers who appeared eligible for the refundable credit didn't take it. The IRS notified these taxpayers late last year that they might be eligible and advised them to file amended 2001 returns if they qualified.
For 2002 returns, it's easier for working parents to qualify for the earned-income credit, which refunds some, all or even more than the taxes taken out of paychecks of lower-income workers during the year. New rules allow taxpayers to subtract tax-exempt income from the figure on which the credit is calculated.


Copyright © 2018 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.

 

Click to Read More and View Comments

Click to Hide