Magazine article Newsweek

Searching for Savings at Form 1040 Time: Many of the Tax Cuts Don't Start to Kick in until 2004, but There Are a Few Changes to Take Advantage Of

Magazine article Newsweek

Searching for Savings at Form 1040 Time: Many of the Tax Cuts Don't Start to Kick in until 2004, but There Are a Few Changes to Take Advantage Of

Article excerpt

Byline: Dori Perrucci

You can breathe easy now. Congress isn't taking back any of last year's tax cuts. But it's not accelerating cuts scheduled for 2004 and beyond, either, as President George W. Bush and many House Republicans wanted. The economic-stimulus package passed March 9 delivers tax relief mostly to businesses, especially firms located in lower Manhattan and suffering economic fallout from September 11. There are also extended benefits of 13 weeks for the unemployed. But not much else. So your tax planning for this year should focus on the changes for 2002 that were enacted last year. The highlights:

Retirement

You get to save more in individual retirement accounts: $3,000 per person, a hefty 50 percent increase from $2,000, plus an extra $500 if you're 50 or older. If you didn't save last year's tax rebate, start now with this year's income-tax cuts. If you're a married couple with two kids and earning $50,000 a year, you'll get an additional $600 in 2002. But don't chew it up on pizza--put that money to work in an IRA early in the year and you'll reap the benefits of compound interest. Calculate this: if the two of you are 50 or older, save the maximum $7,000 every January for the next 20 years, and you'll reap an extra $25,626 (assuming 8.25 percent) when you're ready to retire. And if you're on the lower end of the income scale (singles earning less than $25,000, heads of households, $37,500, and couples, $50,000), there's a new tax provision offering a tax credit from 10 to 50 percent of your contributions to your IRA or other retirement account. …

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