| Big
Changes In Federal Estate Tax Rules
If you have a guarantee that you will live until at least 2010 and
believe that Congress will actually allow the scheduled complete repeal of
the tax to stand, then you can forget all about the federal estate tax.
If you are less than 100% confident about either of those things,
planning to minimize estate taxes should still be an important part of
your overall financial plan. If
you have an existing estate plan, the major estate tax changes should
cause you to amend your existing plan.
Two areas for possible amendment are briefly discussed:
| 1. |
If
you have an existing estate plan, it probably includes a bypass
trust arrangement. Most
will simply call for the bypass trust to be funded with an amount
equal to the current federal estate tax exemption without naming a
specific amount. Because
of the large increase in the exemption, the trust may end up with
much more money than you intended while your spouse ends up with
less. Revise your
will to state the bypass trust will be funded with a set amount.
That way your spouse is sure to have enough after you are
gone. |
| 2. |
Review your life insurance coverage. Part of your existing estate plan may be carrying life
insurance solely to pay the federal estate tax bill.
Because your estate tax exemption rises by a hefty
$325,000, as opposed to the $25,000 increase that was scheduled
under the old law, the amount of coverage that you need may go
down accordingly. In addition, the maximum rate drops from 55% to 50%.
So, consider reducing your life insurance coverage. |
|
 Tax
News
Education Deductions and Credits
This year’s new tax law made several
generous improvements in the area of education deductions and
credits. Some of the new
education tax breaks are summarized below:
| Education
Savings Accounts |
Allowable
annual contributions have increased from $500 to $2,000 in 2002;
tax-free distributions can be used for elementary, secondary and
college education in both private or public schools |
| State
Tuition Programs (529 Plans) |
Distributions
in 2002 will be tax-free if used for higher education expenses |
| New
Deduction for Qualified Costs |
This
deduction can be claimed in 2002 whether you itemize deductions or
not; in 2002, the maximum deduction will be $3,000, rising to
$4,000 in 2004 |
| Student
Loan Interest |
Beginning in 2002, more student loan interest will
be deductible; interest will no longer be limited to the first 60
months after the first required loan payment |
|
Tax
Tidbits
 | The Standard Mileage reimbursement rate was increased
to $0.365/mile for 2002 from the $0.345/mile rate used in 2001. |
| If you have a child under the age of 17 at the end of 2001, you will
be eligible to claim a $600 credit, up from $500 in 2000. |
| The annual deferral limit for 401(k)s rises to $11,000 in 2002.
The annual contribution limit for traditional/Roth IRAs goes to
$3,000 in 2002. |
| The tax rate for the PA Capital Stock/Foreign Franchise Tax is 7.49
mills in 2001 down from 8.99 mills in 2000. It is scheduled to be
reduced further in 2002, to 6.49 mills, and will be phased out
entirely by 2009. |
|
Tax
Calendar and Due Dates
| January 15, 2002 |
Final installment date for
2001 estimated tax (individuals).
Use Form 1040-ES or pay by credit card |
| January 31, 2002 |
Employee’s statements
(W-2) for salaries and wages and the amounts of taxes withheld in
2001 are to be furnished by employers to employees |
|
Information returns
(1099s) must be furnished to recipients |
| February 28, 2002 |
Information returns must
be filed with the IRS; W-2s must be filed with the Social Security
Administration |
| March 15, 2002 |
Due date of 2001 income
tax returns (Form 1120 and Form 1120S) for calendar year U.S.
corporations |
|
Last day for filing
application (Form 7004) by Calendar Year Corporation for automatic
six-month extension to file 2000 income tax return |
| April 15, 2002 |
Due date for Individual
income tax returns for calendar year 2001 |
|
Last day for individuals
to file application (Form 4868) for automatic four-month extension
to file 2001 income tax return |
|
Payment of first
installment of 2002 estimated income taxes by individuals |
| April 30, 2002 |
Employers must file Form
941 to report income tax withholding and FICA taxes for the first
quarter of 2002 |
| June 17, 2002 |
Payment of second
installment of 2002 estimated income taxes by individuals |
| July 31, 2002 |
Employers must file Form
941 to report income tax withholding and FICA taxes for the second
quarter of 2002 |
| August 15, 2002 |
Last day for filing 2001
income tax returns by individuals who obtained automatic four month
filing extension |
| September 16, 2002 |
Payment of third quarterly
installment of 2002 estimated income taxes by individuals. |
|
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