Elizabeth Goff,Certified Public Accountant (CPA), Phoenix, AZ

Put these dates on your calendar

Among the tax deadlines you may be required to meet in the next few months are the following:

June 15 - Second installment of 2001 individual estimated tax is due.

July 15 – Due date for extended corporate income tax returns.

August 15 - Extended 2000 individual and partnership (including many LLCs) income tax returns due.

September 15 – Extended 2000 calendar year end corporate tax returns due.

September 15 - Due date for the third installment of 2001 estimated tax.

October 15 - Final extended due date for individual income tax returns.

Checks are Coming in the Mail

As a part of the Economic Growth and Tax Relief Reconciliation Act of 2001 signed by President Bush on June 7, 2001 the U. S. government will send checks to most income taxpayers this year, giving them an advance payment of a 2001 tax credit. This is a reduction of tax and is not taxable income on the federal tax return.

The IRS will automatically process these advance payments after taxpayers have filed their returns for tax year 2000. Taxpayers will not have to complete applications, file any extra forms or call the IRS to request their payments.

In general, individual who had a federal income tax liability for 2000 and who could not be claimed as a dependent on someone else’s tax return are eligible for a 2001 advance payment this year. You had a liability if your tax was greater than the amount of your nonrefundable credits, such as the child tax credit, education credits or childcare credit. Refundable credits-such as the earned income tax credit-are not a factor in determining eligibility or computing the credit or the advance payment.

The 2001 advance payment amount is a maximum of $300 for a single taxpayer, $500 for a head of household, and $600 for a married couple filing a joint return. Most taxpayers will get the full amount as an advance payment this year: some will have it split between this year and next; and some may get all of it as a credit on the 2001 tax return.

It will take the Treasury about three months to mail checks to those who have already filed their 2000 Federal tax returns. By Mid-July, the IRS will send taxpayers a letter describing the amount of the advance payment check, the week it will be sent and the possibility of an offset for an outstanding debt. Recipients should keep the letter for reference when completing their 2001 returns. The IRS will also send a letter of explanation to taxpayers who are not eligible for the payment. If you have moved, be sure to notify the IRS of your address change by filing form 8822 “Change of Address”. The IRS may not be able to notify you of your refund or get the refund to you.

Generally, the last two digits of the taxpayer’s social security number will determine when the checks are mailed, so a person may get a check at different time than a neighbor or even other family members.

Taxpayers who do not file their 2000 tax returns in time for an advance payment this year may claim a credit, to the extent they qualify for it, on their 2001 tax returns.

Report Property Thefts to Police

You can take a tax deduction for property, which is stolen, from you, but property, which you lose because you misplaced it, is not deductible. To guard against improper theft deduction for property, that was actually lost, the IRS will usually ask for proof that the property was stolen. If you report all thefts to the police, the police record is your proof that the property was stolen

Common Overpayment Mistakes in Small Businesses

Many small companies literally throw away money because they don’t have the proper controls to prevent overpayments. Here are the most common overpayment mistakes:

The same invoice is paid twice.
Discounts for prompt payment are overlooked.
Credit memos are forgotten.
Purchase orders are issued or invoices sent without terms and conditions.
Bills are paid when invoice prices are higher than quoted..
Payments are made for goods that were short-shipped, never received or returned to the vendor.

Stop Fraud Before It Starts

Small companies offer great opportunities for employee theft. Here are some tips for helping prevent theft and fraud:

Keep duties separate. No single employee should receive invoice payments, write and sign checks, and reconcile the bank account.
Make sure key employees like accountants take a vacation. Staying in the office constantly helps to cover complicated paper trails.
Know who has your keys. Only specified employees should have keys to your business.
Require employees to use computer passwords. Insist users log on and off the company network daily.
Require pre-employment screening, including interviewing previous employers.
The single most important deterrent to employee theft is the “surprise audit” conducted by the owner or manager. This means on a random basis the owner opens mail, makes bank deposits, looks at bank statements and reconciliations, and looks closely at financial records and reports. In other words, the owner unexpectedly ventures into employee's duties. It is important not to be predictable.

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What is the difference between death & taxes?

Congress does not meet every year to make death worse!

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Your referrals are appreciated

I appreciate when someone gives my name to a friend or associate who is looking for an accountant. Also, please let me know of anyone who would like to receive my newsletter. 602 468-0332 / libby@goffcpa.com

Elizabeth Goff CPA Newsletter

Page 2

The Economic Growth and Tax Relief Reconciliation Act of 2001 was passed by Congress on May 26, 2001, and was signed into law by President Bush on June 7, 2001. The law provides for $1.35 trillion of tax cuts over a ten-year period. Provisions in the tax law are phased in and out so that the total cost of the law would not exceed projected tax surpluses in any of the ten years. Some provisions are effective this year, many become effective in 2002, and others only begin years from now.

In 2001. A new 10% rate has been added to the tax rate schedule and made retroactive to January 1, 2001. Taxpayers will not have to wait until they file their 2001 tax returns next April to receive refunds resulting from the new lower rate. Instead, sometime before October 1, 2001, the Treasury will mail rebate checks of up to $300 for single taxpayers, $500 for heads of household, and $600 for joint filers. See the related article in this newsletter.

The current 28%, 31%, 36%, and 39.6% tax rates will be reduced by 1% effective July 1, 2001. Also effective this year is an increase in the child tax credit from $500 to $600.

In later years. Other changes the new law will make over the next nine years include a gradual reduction in income tax rates, some relief from the marriage penalty, a gradual reduction in and eventual elimination of the estate tax, an increase in the contribution limits to IRAs and qualified retirement plans, new education tax breaks, and a doubling of the child tax credit.

It should be noted that even though all of the law’s provisions are not fully phased in until 2010, the Act contains a sunset provision rescinding the entire law in 2011 unless a future Congress acts to extend it.

This article gives you general information on the major provisions in the new law. If you have questions about how the new law will affect you, or if you wish to review your tax planning in light of the new law, please contact my office.

Tax Rates

Retroactive to January 1, 2001, a new 10% tax rate will apply to the first $6,000 of taxable income for single individuals, $10,000 for heads of household, and $12,000 for married couples filing jointly. To stimulate the economy, the savings resulting from taxing this income at 10%, rather than the previous 15%, will be returned to taxpayers in the form of rebate checks. The Treasury estimates that about 95 million rebate checks will be sent to taxpayers by October 1 (somewhat later for those who filed late or extended 2000 tax returns). Based on their 2000 taxable income, single filers will receive up to $300, heads of household up to $500, and couples up to $600.
The tax rates above 15% will drop by 1%, effective July 1, 2001. They will drop an additional 1% in 2004 and again in 2006. (In 2006, the top rate will drop even further – to 35%.) For 2006 and later years, the tax rates, therefore, will be 10%, 15%, 25%, 28%, 33%, and 35%.
Currently, taxpayers lose the benefit of personal exemptions once their income reaches certain levels. This phase-out of the personal exemptions for higher-income taxpayers will be gradually repealed beginning in 2006.
The limitation on itemized deductions for higher-income taxpayers, which can result in their losing up to 80% of their itemized deductions, will be gradually repealed starting in 2006.
For the years 2001 through 2004, the alternative minimum tax exemption will be increased by $2,000 for single taxpayers and by $4,000 for married taxpayers filing joint returns.

Children

The child tax credit will double by 2010, increasing according to the following schedule:

2001 – 2004................. $600

2005 – 2008................. $700

2009............................ $800

2010 and later............ $1,000

For 2001 through 2004, the child tax credit will be refundable to the extent of 10% of a taxpayer’s earned income above $10,000. Beginning in 2002, the child tax credit will not be reduced by the alternative minimum tax.
The adoption credit is permanently extended and increased to $10,000, effective in 2002. The exclusion from income for employer-provided adoption assistance is made permanent and increased to $10,000, effective in 2002.
The dependent care tax credit will be expanded beginning next year. The new law increases the maximum amount of eligible job-related expenses from $2,400 to $3,000 for one qualifying individual and from $4,800 to $6,000 for two or more qualifying individuals. It also increases the maximum credit from 30% to 35%.
The cost of employer-provided child care facilities will be eligible for a tax credit of 25% starting in 2002. The maximum credit is $150,000 per year.

Marriage Penalty

To provide some relief from the marriage penalty, the new law gradually increases the standard deduction for marrieds filing jointly to twice the standard deduction of single filers, beginning in 2005.
Also beginning in 2005, the 15% tax bracket for joint filers will be gradually expanded to double the 15% bracket for singles.
Beginning in 2002, there will be gradual increases in the beginning and ending phase-out ranges for the earned income credit for taxpayers filing joint returns.

Education

Next year the rules governing education IRAs will be modified. The annual contribution limits will increase from $500 to $2,000, and education IRA funds may be used to pay for elementary and secondary school expenses as well as higher education costs. More taxpayers will qualify to make contributions since the income phase-out range for married taxpayers filing jointly will increase to begin at $190,000 and end at $220,000.
Beginning in 2002, Hope and lifetime learning tax credits can be claimed in the same year as education IRA distributions are taken, as long as different expenses are covered by each.
Qualified tuition programs are expanded to include private higher education institutions as well as state-sponsored ones. In addition, qualified distributions taken from state-sponsored tuition programs after 2001 will be tax-free. After 2003, this tax-free status applies to distributions from nonstate programs as well.
The income exclusion for employer-provided education assistance is made permanent and, starting next year, is extended to cover graduate as well as undergraduate education.
Starting in 2002, the income phase-out ranges for the student interest deduction
will be increased, and the rule limiting the deduction to the first 60 months of loan repayment is eliminated.
In 2002 and 2003, taxpayers will be allowed to deduct qualified higher education expenses in arriving at their adjusted gross income. The maximum deduction is $3,000 per year and is permitted only if taxpayer income does not exceed $65,000 for singles or $130,000 for joint filers. The deduction increases to a maximum $4,000 for 2004 and 2005. In 2004 and 2005, taxpayers whose income does not exceed $80,000 ($160,000 joint) will be entitled to a deduction of up to $2,000 for higher education expenses. The deduction for higher education expenses ends after 2005.

Retirement

The contribution limit for individual retirement accounts (IRAs) gradually increases from the current $2,000 to $5,000 according to the following schedule:

2002 – 2004............. $3,000

2005 – 2007............. $4,000

2008 and later.......... $5,000

The contribution limit will be adjusted for inflation after 2008. From 2002 through 2006, lower-income taxpayers may qualify for a tax credit ranging from 10% to 50% of the amount they contribute to a retirement plan.

Employee contribution limits to 401(k) and 403(b) plans will increase gradually from the current maximum of $10,500 to $15,000. The limit will be $11,000 in 2002; it will increase by $1,000 each year until it reaches $15,000 in 2006. The law creates Roth-type 401(k)s beginning in 2006.
Catch-up contributions will be allowed for individuals who are 50 or older. From 2002 through 2005, these taxpayers can contribute an additional $500 to their IRAs. Beginning in 2006, this additional contribution limit increases to $1,000. Higher catch-up contributions are permitted for other retirement plans.

Estate Tax

Effective for 2002, the 5% estate surtax on larger estates is repealed. The estate tax rates will decrease, and the amount exempt from tax will increase over the next ten years, according to the following schedule:

Year	Exemption Amount	Top Tax Rate
2002	$1 million	50%
2003	$1 million	49%
2004	$1.5 million	48%
2005	$1.5 million	47%
2006	$2 million	46%
2007-2008	$2 million	45%
2009	$3.5 million	45%
2010	Estate tax repealed

In 2010, the estate and generation-skipping taxes are repealed, but the gift tax is retained with a $1 million lifetime exclusion. The top gift tax rate after 2009 will be the same as the top individual income tax rate.
The current step-up in basis for property acquired from an estate will end when the estate tax is repealed. In its place will be a basis step-up for a limited amount of assets.

Tax planning becomes more challenging with every new piece of tax legislation. This latest tax law, with its numerous effective dates and varied phase-in and phase-out periods, certainly adds complexity to an already convoluted tax code. If you wish to enjoy the maximum benefit from the tax rate cuts and the other tax benefits in the law, you will have to do some tax planning.

I want you to get the best tax treatment possible under this new legislation, and I am ready to assist you in making wise tax and financial choices. Please call for details on any provision in the tax law that concerns you or to make an appointment for a more general review of your tax situation.

Note: The information included in this newsletter is general in nature, and should not be acted upon in your specific situation without further details and/or professional assistance. You can contact me at: 602 468-0332 / libby@goffcpa.com.