- The Washington Times - Monday, November 17, 2003

April 15 may seem far away, but it’s not too early to start thinking about your 2003 income taxes.

Planning now could save you a lot of aggravation and money next spring.

“Tax planning is not just for the rich,” said John W. Roth, an analyst at CCH Inc. in Riverwoods, Ill., which provides tax information and services. “The more you do now, the better off you’ll be.”

Mr. Roth says one of the biggest mistakes taxpayers make is not keeping track of receipts and other documents.

“I used to work at a national tax preparation service, and it was amazing what poor record keepers Americans are,” Mr. Roth said. “If you don’t get organized, you might not get everything you’re entitled to in the way of credits and deductions.”

The first thing to do now, he advises, is to gather the receipts for charitable contributions in one place. That can include donations to a church or synagogue, to the Salvation Army and to a college or university.

Next, he said, start a folder so that when your W-2 wage statements and 1099 interest and dividend forms arrive in January, you’ll have a single place to stash them.

Mr. Roth also recommends that if you sold stock or a mutual fund this year, you should make sure you have the original transaction statement so you know how much you paid and can accurately value the gain or loss.

“If you can’t find it, call your brokerage company now,” Mr. Roth said. “Brokers are more willing at this time of the year to review your portfolio and get those statements for you than they are between Jan. 1 and April 14, when everyone is calling for this information.”

The tax law passed earlier this year includes several changes that almost all taxpayers will benefit from. They include:

• Reducing marginal income tax rates across the board and lowering the maximum rate to 35 percent from 38.6 percent.

• Increasing the child tax credit to $1,000 from $600.

• Raising the standard deduction — a dollar amount that reduces the total income on which you are taxed.

This year’s deductions are $9,500 for couples filing jointly, up from $7,850 in the 2002 tax year, and $4,750 for singles, up from $4,700 last year, tax services estimate.

As a result of the more-generous standard deductions, many families might not find it as beneficial to itemize their deductions.

Whether you itemize or not, there are a number of simple steps you can take to hold down your taxes, said Leslie Gordley, a tax and financial planner with A.G. Edwards & Sons Inc. in St. Louis.

Workers can reduce taxable income by contributing to employer-sponsored retirement plans like 401(k)s and 403(b)s or by setting up Individual Retirement Accounts.

“We recommend that individuals take advantage of their employer retirement plans first,” Mr. Gordley said. “Get those pretax dollars into that qualified plan, at least to the point of taking advantage of the employer matching program.”

The contribution limit on company-sponsored accounts this year is $12,000, with workers 50 and older eligible for an additional “catch-up” contribution of $2,000.

The IRA maximum is $3,000, with an additional $500 “catch-up” for older workers.

In addition, workers should consider setting up flexible spending accounts, which allow them to use pretax dollars for either medical or childcare expenses, Mr. Gordley said.

Workers who don’t already have them can enroll now for next year.

There are several changes in the 2003 tax act that may create confusion, and becoming aware of them now should make things easier at April filing time.

One involves claiming the child tax credit, now set at $1,000.

“Last summer, parents who were eligible received a $400 check for each qualifying child,” Mr. Gordley said.

It was a prepayment that the government hoped would put money in consumers’ pockets to stimulate the economy.

As a result, Mr. Gordley said, “When people complete their return in the spring, they will get the credit for just $600.”

If you’ve forgotten how much you received, you can go to the IRS site at www.irs.gov, click on “individuals” and then go to “here’s my advance child tax credit?”

Another area that could cause confusion is the reporting of dividend income. The maximum tax rate on dividends received in 2003 is 15 percent; they had been taxed as ordinary income.

Dividends paid by domestic and foreign corporations generally qualify for the lower rate.

But A.G. Edwards points out there are a lot of things that are sometimes called dividends that are not, including payouts from limited partnerships and real estate investment trusts, mutual funds, preferred stocks and employee stock ownership plans.

ASSOCIATED PRESS


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