Tax relief -- the changes in the tax laws

Part 2 of a 2-part series

Last month we discussed the fact that the federal tax relief will be phased in gradually over the next 10 years. We continue with additional information you need to take advantage of the changes in the federal tax laws.

Child-related tax relief

Eventually the child tax credit will double from $500 to $1,000. For 2001 there is only a $100 increase, and no taxpayer will get the full $1,000 per child credit until 2010. Other child-related relief, in the form of an increased adoption credit and a tax credit for employer-provided child care facilities, are also available.

Marriage penalty relief

Marriage penalty relief, which doesn't start until 2005, will eventually raise the standard deduction for married taxpayers to double that of single filers, and will expand the 15 percent bracket for joint filers. If you itemize your deductions rather than take the standard deduction, you will only share in half of the marriage penalty relief and will need to make alternative plans.

Education relief

There is substantial tax relief for a family's education expenses that will often require coordination to get the right mix of benefits. A new, $3,000 per year above-the-line college tuition deduction will be available starting in 2002, and will expand thereafter. Education IRAs expand immediately for 2002 to allow contributions of up to $2,000 each year. And you will be able to use education IRA funds to cover elementary and secondary school costs. In addition, enhanced student loans interest deduction starts in 2002, with fewer restrictions.

Retirement savings/pension relief

You may want to revise your retirement savings plans since the new law allows more tax-sheltered retirement savings. The contribution limits to both traditional and Roth IRAs will rise from $2,000 to $3,000 for 2002-2004, $4,000 for 2005-2007, and $5,000 for 2008. Special catch-up contributions for age 50 or above (to all plans other than SIMPLEs) also increase an additional $500 in 2002-2005 and to $1,000 in 2006. Those who have 401(k) retirement savings accounts will be able to contribute up to $15,000 each year by 2006. Other reforms will make it easier for small businesses to set up retirement plans for their employees.

As always, we advocate the use of a professional in reviewing your tax matters as related to your individual, corporate, educational, pension, estate or any other tax measures. We suggest now, even more, that you review the issues surrounding your taxable income and your personal financial issues with qualified advisers.

Melvin J. Van de Ven, CPA, CVA is a partner in the certified public accounting firm of Schott & Van de Ven, 1020 N. Kingshighway, Suite D, Cape Girardeau. He can be reached by email at mvandeven@schottvandeven.com.