For Dr. Walter Harris, the calendar might say 2003, but he’s still trimming his 2002 tax bill. “I expanded my practice last year, which required a great deal of cash,” says Harris, 46, an ophthalmologist in Philadelphia. “I couldn’t afford to fund my profit-sharing plan. However, this plan is valuable because it motivates my employees and helps me build up my own retirement account. I still have time to make a contribution to the plan for 2002, and I intend to do so.”
Harris’ plan is funded by his professional corporation, so his 2002 contribution must be made by the deadline for filing corporate returns for 2002: March 17, 2003. Any money he contributes now will be deducted from 2002 income. Because Harris’ company has elected S corporation status, the deduction will flow through to his personal tax return for 2002.
Other options to consider for 2002:
o Individual Retirement Accounts (IRAs). You can contribute to a 2002 IRA until April 15, 2003. The old $2,000 limit was raised to $3,000 in 2002, while those who were 50 or older last year can contribute $3,500. “You can also take a deduction if you do not participate in an employer’s retirement plan or if your income was below certain levels, ” says Anita Conner, a CPA in Elkins Park, Pennsylvania. “Moreover, a nonworking spouse can make a full IRA contribution and take a full deduction, if the couple’s adjusted gross income (AGI) was below $150,000.”
Other Retirement Plans. If you had self-employment income in 2002, there’s still time to shelter some of that income with a simplified employee pension (SEP) plan—you’ll need a tax pro or a software program to crunch the numbers. Generally, you can contribute (and deduct) up to 20% of your self-employment income. In 2002, the upper limit on SEP contributions rose from $25,500 to $40,000.
Charitable Contributions. Under the tax code, you can deduct the fair market value of any items you donate. According to Income Dynamics Inc. (www.itsdeductible.com), 20 million Americans donate items to charity each year, but 91% of them underestimate the value of the items they donate. Conner adds that any mileage you accumulated as a volunteer for a not-for-profit organization is deductible, at 14 cents a mile for 2002.
Miscellaneous Itemized Deductions. This category includes unreimbursed employee business expenses, tax preparation, and subscriptions to investment publications (such as BLACK ENTERPRISE!). The total of these deductions is deductible if it exceeds 2% of your AGI. And in a year of widespread layoffs, “Job-hunting expenses also are included as miscellaneous deductions,” Conner says.
Mortgage Points. “If you refinanced your mortgage last year, as many did, go over your settlement papers,” says Conner. “Points paid to refinance a mortgage can be deducted over the life of the loan, but points paid on a loan used for home improvements may be deducted right away.”