Planning now can lessen tax consequences April 15

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Planning in the next few months can have a big impact when tax day arrives April 15.|ret||ret||tab|

"Start planning now for the end of the year. It will be here soon," said Jeff Rowe, manager of the tax section at BKD LLP. |ret||ret||tab|

If 2002 has been a good year, then perhaps it is the right time to look at expenses that will reduce the tax liability.|ret||ret||tab|

"We do a lot of tax planning in December. For someone who owns a business or a corporation, there's a lot they can do in December to minimize taxes," said Sandra K. Ipock, CPA, a certified financial examiner with McCullough, Officer & Company. |ret||ret||tab|

"For example, a client wants to buy depreciable equipment. Do they need the deduction this year to offset income? If so, they should buy before Jan. 1. If not, wait. |ret||ret||tab|

"That's tax planning."|ret||ret||tab|

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Know the tax laws|ret||ret||tab|

Tax planning means being aware of changes in tax laws. |ret||ret||tab|

The Federal Job Creation Worker Assistance Act of 2002, passed March 9, made a number of changes.|ret||ret||tab|

These included several retroactive provisions dealing with depreciation allowance and net operating loss.|ret||ret||tab|

"This was in response to Sept. 11, 2001; it even had an effect on tax laws. That was the main motivation behind the act; that and to try to stimulate the economy," Ipock said.|ret||ret||tab|

Taxpayers need to be aware of the changes this might make to their past returns. |ret||ret||tab|

"Since this law wasn't signed until March 2002, a lot of people may have filed 2001 income tax returns before that time and didn't take advantage of these big breaks. They need to take another look at 2001 tax returns to see if they need to amend them to get the benefits of these provisions," Ipock said.|ret||ret||tab|

On federal taxes, a 30 percent additional depreciation allowance can be applied to new assets purchased after Sept. 10, 2001, until roughly Sept. 11, 2004, Ipock said. |ret||ret||tab|

The state of Missouri, however, won't allow that deduction for purchases after June 30, 2002, for state taxes, Rowe said.|ret||ret||tab|

The act also allows businesses to carry back their net operating losses for five years. |ret||ret||tab|

"The idea behind it was that if you suffered an economic loss because of Sept. 11 in 2001 and 2002, you can now carry this back for five years," Ipock said. "People can use current losses against prior years where they might have had a higher income and get a refund."|ret||ret||tab|

This is another tax change that the state of Missouri isn't allowing, Rowe said.|ret||ret||tab|

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Other federal changes|ret||ret||tab|

Rowe said there is a new revenue procedure for some small businesses. |ret||ret||tab|

"Qualifying small businesses with annual gross receipts under $10 million may now use the cash method of accounting," Rowe said.|ret||ret||tab|

"In particular, this applies to businesses such as contractors and nursing homes. It won't apply to wholesalers, retailers and manufacturers."|ret||ret||tab|

Teachers are getting a break this year. Rowe and Ipock said starting in 2002, teachers get a $250 deduction for expenses related to the purchase of classroom supplies.|ret||ret||tab|

"This is an above-the-line deduction; they won't have to itemize to do this," Ipock said.|ret||ret||tab|

Another change is in the standard mileage rate deduction. Ipock said it is 36.5 cents per mile for 2002 and will decrease to 36 cents in 2003.|ret||ret||tab|

A $2,000 deduction also is possible for the purchase of a hybrid automobile. |ret||ret||tab|

A hybrid automobile is one that can run on both electricity and fuel.|ret||ret||tab|

The annual gift exclusion is $11,000 this year, Rowe said. "It could be cash given from a parent to a child, or the fair market value of the stock of a small business," Rowe said.|ret||ret||tab|

Retirement plans have changes, too. "Starting in 2002, taxpayers age 50 and over are eligible for a catch-up contribution for 401(k) of $1,000; each year through 2006, it goes up another $1,000," Rowe said.|ret||ret||tab|

The IRA contribution for the 50-and-over age group is $500 more than the $3,000 traditional limit, Rowe said. Ipock said this year there are three different sets of rules for pulling distributions out of IRAs. |ret||ret||tab|

And more changes are possible, Ipock said|ret||ret||tab|

"With this being an election year, Congress could pass all sorts of things that change what we are talking about now," Ipock said.|ret||ret||tab|

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