Slightly Less Taxing Times Ahead

Like many years, 2002 brings with it changes to the tax laws. Thanks to the enactment of a new tax package last year, there are more changes than usual that may affect you in the year ahead.

Here is a summary of some of the more important revisions to the tax code that may have an impact on your bottom line. Keep these in mind as you plan ahead for the rest of the year.

Income tax rates
The traditional income tax brackets (15%, 28%, 31%, etc.) began to be adjusted last year. An additional change took place this year, which will provide even more savings for most taxpayers. Here is a table comparing the old rates, last year's rates, and the new tax brackets in effect in 2002 and 2003:

Old Tax Bracket	Rate in 2001	Rate in 2002 and 2003
15%	10% to 15%*	10% to 15%*
28%	27.5%	27%
31%	30.5%	30%
36%	35.5%	35%
31%	39.1%	38.6%
10% rate applies for first $6,000 of income for single tax filers and the first $12,000 for those married, filing a joint return.

Larger retirement plan contributions
With retirement savings more important than ever, the government has implemented additional incentives to save in a variety of ways:

IRAs
Beginning in 2002, the maximum you can contribute to an IRA in a year rises from $2,000 to $3,000. And if you are 50 or older, new catch-up provisions allow you to invest an additional $500 annually to help you make up for time you may have lost if you didn't invest sufficient sums in the past.

Workplace plans
Higher maximum contribution levels now apply to workplace retirement plans. So if you participate in a 401(k) or 403(b) plan at work, you can now contribute as much as $11,000 per year (up from the previous limit of $10,500). In addition, catch-up provisions also exist with these plans, allowing participants age 50 or older to contribute an additional $1,000 above the legal limits.

Deductions and credits
The standard deduction will increase in 2002. For married couples filing a joint return, the deduction bumps up from $7,600 to $7,850. For most singles, it increases from $4,550 to $4,700.

The child tax credit (for families with children under age 17) rises from the old limit of $500 per qualifying child to $600.

Gift tax and estate tax exclusion
Individuals now can make gifts of up to $11,000 to any other person without incurring a gift tax. That is a $1,000 increase in the gift tax exclusion. For instance, a married couple can each give up to $11,000 to any other person (related or not) without incurring gift tax.

Individuals with estates valued at up to $1,000,000 (in 2002) will not have their assets subject to estate taxes upon death. That is a small increase in the estate tax exclusion rate. The exclusion amount will continue to rise in years to come.

College savings
The new Section 529 college savings plans have an extra benefit this year. All qualified distributions can be made on a tax-free basis. That makes these IRA-like college savings programs even more attractive than they were before.

Another way to save for college is with Coverdell Education Savings Accounts (formerly known as Education IRAs). Previously, contributions to these accounts were limited to $500 per year. Now, they are increased to $2,000, with qualified purposes including elementary and high school education expenses along with higher education costs.

Additional tax changes are being implemented as well. Be sure to consult with your tax advisor to determine how the new laws will affect you in 2002.

Content is for informational purposes only and may not accurately reflect your specific situation. Information is not intended to provide financial, legal, tax, or accounting advice. You should consult a qualified advisor for advice specific to your own circumstances.