IRS 2002: New Features, New Services, New Credits
In light of a new study that shows high customer satisfaction with respect to the IRS's e-filing program, taxpayers and tax practitioners are once again being urged to e-file tax returns. The American Customer Satisfaction Index placed the satisfaction rate for electronic filers at 77, representing the third consecutive year in which taxpayers using IRS e-file expressed increased satisfaction. According to the IRS, advantages of e-filing include faster refunds, more accurate returns, rapid electronic confirmation, reduction of paperwork, payment options, and federal/state e-filing.
A new feature on Form 1040 allows a taxpayer to designate a family member, friend, or tax professional to talk directly to the IRS about any tax return processing questions.
Child Tax Credit
In 2002, eligible parents will receive a maximum $600 tax credit per child, a $100 increase from the previous year. The credit may now be refundable if it exceeds the taxpayer's tax liability, with the refund generally limited to 10% of the amount by which earned income exceeds $10,000. Some taxpayers with three or more children may qualify for a larger refundable amount.
Tax Rate Reductions
The tax rates above 15% have been lowered by one-half a percentage point, reflecting a rate reduction that took effect on July 1, 2001. The rates for 2001 are: 27.5%, 30.5%, 35.5% and 39.1%. Taxpayers also have the benefit of a 10% tax rate on the first $6,000 of taxable income ($10,000 for a head of household; $12,000 for a married couple). Most individuals received that benefit as an advance payment check during 2001. However, those taxpayers who did not receive the maximum rebate amount ($300, $500, or $600, depending on filing status) may be able to claim a Rate Reduction Credit on their 2001 returns. Dependents who were ineligible to receive the Advance Payments have been advised to check the instructions for a Tax Computation Worksheet that will give them the benefit of the 10% rate.
Capital Gains Rate for Five-Year Property
The 10% maximum tax rate on capital gains dropped to 8% for property held more than five years. The 20% rate will drop to 18%, but only for property purchased after 2000. Taxpayers have the option of treating investment property as though they sold and repurchased it at the beginning of 2001. They would thus begin a new holding period, with a view toward reporting future gains after 2005 as resulting from five-year property.
Workers who fall within the following income guidelines and who are covered by an employer retirement plan can deduct all contributions to a traditional IRA: a single person or head of household with income under $33,000 and a married person filing jointly or a qualifying widow(er) with income under $53,000. If their income is less than $10,000 above those amounts, some contributions may be deductible.
Alternative Minimum Tax
The alternative minimum tax exemption rises to $35,750 for a single person or head of household, and to $49,000 for a married couple or a surviving spouse.
Restitution payments made to those persecuted by the Nazis or their allies are excludable from income and from other tax computations.
Standard Mileage Rates
Taxpayers may deduct 34.5 cents a mile for all business miles driven during 2001, and 12 cents per mile for travel related to qualifying medical or moving expenses.
Student Loan Interest Deduction
The deduction limit is now $2,500.
Free Tax Assistance
The IRS has adjusted its toll-free telephone service hours during the busiest time of the year. Assistance will be available throughout the 2002-filing season from 7 a.m. to 10 p.m., Monday through Friday, and 9 a.m. to 5 p.m. on Saturdays. In addition, Taxpayer Assistance Centers will provide personal help in resolving taxpayer problems, and tax practitioners will have access to the new Practitioner Priority Service, a nationwide, toll-free technical support system.
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