Kenneth Watter, CPA, P.A. - Economic Growth and Tax Relief Reconciliation Act of 2001

		Kenneth J. Watter, CPA, P.A.
		Certified Public Accountant	(301) 652-0580
		Certified Financial Planner	ken@wattercpa.com

Home Services Advice About Ken Contact	The Economic Growth and Tax Relief Reconciliation Act of 2001 Overview Tax Rate Reductions Alternative Minimum Tax Marriage Penalty Relief Child Tax Credit Adoption Credit Education Benefits Education IRA Qualified Expenses Student Loan Interest Higher Education Expense Deduction Estate Tax Issues The Unified Credit Basis in Inherited Assets Gift Tax Retirement Plan Changes Catch-Up Contributions Catch-up Contributions for IRAs Sunset Provision Charts Showing Estate Tax Costs Individual Regular Income Tax Rates (Projected)
	OVERVIEW:

Home Services Advice About Ken Contact	$1.35 trillion Over 10 years Over 400 changes to the code Tax Rate Reductions Marriage Penalty Relief Tax Benefits Relating to Children Education Benefits Estate Tax Changes Pension & IRA Changes Sunset Provision back to top
	TAX RATE REDUCTIONS:

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New 10% bracket for the first $6,000 for singles, $12,000 for married/joint, and $10,000 for head of household

(old bracket was 15%)

5% difference x $6,000 = $300 rebate

5% difference x $12,000 = $600 rebate

5% difference x $10,000 = $500 rebate

Rebate checks were sent instead of reducing 2001 rates to get the tax break into your hands earlier.

If 2000 return was filed by 4/16/01- your check will arrive by Oct. 1, 2001
Phased in over time

Dates	Rates
Through 7/1/01	28%	31%	36%	39.6%
7/1/01 -2003	27%	30%	35%	38.6%
2004-2005	26%	29%	34%	37.6%
2006 & Later	25%	28%	33%	35.0%

No more Phaseout of Personal exemptions!
But- relief is phased in over five years
And- It doesn't begin until 2006

No More Phaseout of Itemized Deductions!
But- Relief is phased in over five years
And- It doesn't start until 2006

Look out for the ....

Alternative Minimum Tax

Home Services Advice About Ken Contact	AMT exemption increases by $4000 (married) or $2,000 (single) But- Only for 4 years (2001-2004) The Government's own experts estimate that by the year 2010, 18 million more tax returns will be hit with AMT back to top
	MARRIAGE PENALTY RELIEF:

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Increase in Standard Deduction
- Beginning in 2005 at 174% of Single
- Reaches 200% of Single by 2009
Changes to 15% bracket
- Beginning in 2005 at 180% of that of single filers
- Will reach twice that of single filers in 2008

And for you parents out there...

The Child Tax Credit:

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Currently $500 per child under age 17.

Will increase.

Year Credit

2001-2004 $600

2005-2008 $700

2009 $800

2010 & Later $1,000

Adoption Credit:

Home Services Advice About Ken Contact	Made permanent Increased to $10,000 per child (was $5,000) Phaseout range increased to $150,000 - $190,000 (was $5,000 - $115,000) Employer paid costs up to $10,000 excluded from income (subject to phaseout ) $10,000 credit for special needs adoption regardless of expenses back to top
	Education Benefits:

Home Services Advice About Ken Contact	EDUCATION IRA: Increased from $500 to $2,000 Contributors' income range can be $190,000- $220,000 (married/joint) (single = $95,000- $110,000) Contributions can be made up to April 15 for the preceding year Can now be used for elementary and secondary schools. back to top
	Qualified expenses:

Home Services Advice About Ken Contact	Tuition Fees Tutoring Equipment Room & Board Uniforms Transportation Computer Equipment Internet Access Can claim Hope and/or Lifetime Learning credit for the same student that uses Education IRA money - (not for same expenses) back to top
	Student Loan Interest:

Home Services Advice About Ken Contact	Phaseout range increased to $50,000- $65,000 for singles and $100,000 to $130,000 for married/joint No more 60 month rule back to top
	Higher Education Expense Deduction:

Home Services Advice About Ken Contact	Above the line Maximum deduction is $3,000 (2002 & 2003) ($4,000 in 2004 & 2005) ENDS IN 2006 You will need to do some calculating, since you will need to choose between the Hope/Lifetime credits vs this deduction. They cannot both be claimed for the same student. Also, expenses that are paid from excluded income do not qualify. back to top
	Estate Tax Issues

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THE UNIFIED CREDIT:

2001 $675,000

2002 $1,000,000

2003 $1,000,000

2004 $1,500,000

2005 $1,500,000

2006 $2,000,000

2007 $2,000,000

2008 $2,000,000

2009 $3,500,000

2010 UNLIMITED

BASIS IN INHERITED ASSETS:

Home Services Advice About Ken Contact	Carryover Basis - record keeping! 1.3 Million "step up" Additional $3 Million "step up" for surviving spouse Limited to fair market value of asset Executor elects which assets receive "step up" Increased reporting responsibility for executors -substantial fines possible back to top
	Gift Tax:

Home Services Advice About Ken Contact	Not repealed Top rate is: 50% in 2002 49% in 2003 48% in 2004 47% in 2005 46% in 2006 45% in 2007- 2009 35% in 2010 (tied to top income tax rate ) Top rate after 2007 is same as top income tax rate back to top
	Retirement Plan Changes:

Home Services Advice About Ken Contact	Defined Contribution limits increased to 40,000 (in 2002) Compensation limits increased to $200,000 (in 2002) 401(k), 403(b) limits increased $11,000 in 2002 $12,000 in 2003 $13,000 in 2004 $14,000 in 2005 $15,000 in 2006 & thereafter IRAs: $3,000 in 2002- 2004 $4,000 in 2005- 2007 $5,000 in 2008 & later Loans to shareholder/owners of S-Corps, Partners & Sole Props now are OK (does NOT include IRAs) back to top
	CATCH-UP CONTRIBUTIONS !

Home Services Advice About Ken Contact	For individuals over 50 years old by year end. (Begins in 2002) For 401(k), 403(b ), SEP For 2002- $1,000 For 2003- $2,000 For 2004- $3,000 For 2005- $4,000 For 2006- $5,000 back to top
	CATCH-UP CONTRIBUTIONS FOR IRAs:

Home Services Advice About Ken Contact	For 2002 - 2004 $3,500 Maximum For 2005 $4,500 Maximum For 2006 - 2007 $5,000 Maximum For 2008 & later $6,000 Maximum Also good for ROTH IRAs back to top
	SUNSET PROVISION:

Home Services Advice About Ken Contact	Effective December 31, 2010, all of the items we just discussed EXPIRE! Estate tax is back -$1,000,000 unified credit 2001 tax rates are back IRA, 401(k) limits are back Education benefits are gone Increased child credit is gone back to top
	Charts Showing Estate Tax Costs over Next Several Years for Estates of Varying Sizes

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Estate Tax Costs for the $1 Million Taxable Estate

Year

Estate Tax

2001

$125,250

2002 and later years

-$0 -

Estate Tax Costs for the $2 Million Taxable Estate

Year

Estate Tax

2001

$560,250

2002

$435,000

2003

$435,000

2004

$225,000

2005

$225,000

2006-2010

-$0 -

2011

$435,000

Estate Tax Costs for the $3 Million Taxable Estate

Year

Estate Tax

2001

$1,070,250

2002

$930,000

2003

$925,000

2004

$705,000

2005

$695,000

2006

$460,000

2007

$450,000

2008

$450,000

2009-2010

-$0 -

2011

$945,000

Individual Regular Income Tax Rates for 2006 (Projected)

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Single Individuals

If Taxable Income Is: The Tax Is:

Not Over $6,000 10% of taxable income

Over $6,000, but not over $30,950 $600, plus 15% of the amount over $6,000

Over $36,950, but not over $74,950 $4,342.50, plus 25% of the amount over $30,950

Over $74,950, but not over $156,300 $15,342.50, plus 28% of the amount over $74,950

Over $156,300, but not over $339,850 $38,120.50, plus 33% of the amount over $156,300

Over $339,850 $98,692, plus 35% of the amount over $339,850

Heads of Households

If Taxable Income Is: The Tax Is:

Not Over $10,000 10% of taxable income

Over $10,000, but not over $41,450 $1,000, plus 15% of the amount over $10,000

Over $41,450, but not over $107,000 $5,717.50 plus 25% of the amount over $41,450

Over $107,000, but not over $173,300 $22,105 plus 28% of the amount over $107,000

Over $173,300, but not over $339,850 $40,669, plus 33% of the amount over $173,300

Over $339,850 $95,630.50, plus 35% of the amount over $339,850

Married Individuals Filing Joint Returns

If Taxable Income Is: The Tax Is:

Not Over $12,000 10% of taxable income

Over $12,000, but not over $57,850 $1,200, plus 15% of the amount over $12,000

Over $57,850, but not over $124,900 $8,077.50, plus 25% of the amount over $57 ,850

Over $124,900, but not over $190,300 $24,840 plus 28% of the amount over $124,900

Over $190,300, but not over $339,850 $43,152, plus 33% of the amount over $190,300

Over $339,850 $92,503.50, plus 35% of the amount over $339,850

Information presented on this website is not intended to be a substitute for professional tax or investment advice. This information may not be applicable to your specific situation. Please review your specific situation with a tax or investment professional before implementing any of the ideas presented herein.


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