Avoiding Year-End Tax Traps

Making the right moves before December 31 can shave thousands off your bill to Uncle Sam

The same 15% (or 5%) maximum tax rate that applies to net capital gain also applies to dividends paid by most domestic and foreign corporations after Dec. 31, 2002.

The new law affects all businesses. Those who are self-employed are included. Changes in this law include:

A special first-year depreciation allowance of 50% for qualified property acquired after May 5, 2003. (Except for property acquired under a binding written contract in effect before May 6, 2003). The depreciation limit for vehicles subject to the 50% allowance is increased by $7,650.

A limit on the Section 179 expense deduction is increased to $100,000 for qualified property. This limit is reduced by the amount by which the cost of Section 179 property placed in service during the year exceeds $400,000. This definition of Section 179 property has been expanded to include off-the-shelf computer software.

And for corporations: The installment due date for 25% of any corporate estimated tax payment otherwise due in September 2003 has been changed to Oct. 1, 2003. The due date for the remaining 75% of the September 2003 estimated tax payment has not changed.

Common Tax Errors to Avoid
Everyone is looking for ways to reduce expenses, reduce taxes, and keep more year-end income.
The best approach to shaving money off your tax bill to Uncle Sam is to simply do your homework. The more information you have at your fingertips regarding deductions and expenses, the more you’ll save. Remember, the list of deductions that come with your tax return is only a fraction of the total deductions you and your family may be entitled to. It’s your responsibility to find those missing deductions, because the Internal Revenue Service will not help you. It isn’t their responsibility to help you find tax deductions. That’s your job!

However, the IRS does offer little reminders from year to year that might help you when you do file your annual taxes. One immediate reminder is to avoid common errors. Here are a few items to check off when you send in this year’s tax return:

  • Check your math, particularly if someone else is doing your taxes for you.
  • Make sure your Social Security number is written correctly on the document.
  • Make sure you’ve claimed all of your dependents, including children who are away in college, or elderly parents who depend on your for financial support.
  • If you are single, but you have dependents living with you (whether they are your children or not), you might qualify for a lower tax rate available to you as head of household or surviving spouse.
  • If you’re married, you might explore the option of filing separate returns rather than a joint return. In some cases, filing separate is much more beneficial than filing jointly.
  • If you are blind or 65 years of age or older, you might be eligible to claim for additional standard deductions.
  • Double check that your W-2 and all Form 1099s are accurate. If they’re wrong, have them corrected immediately.
  • If you work for two or more employers, make sure you claim a credit
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