Tax Tip of the Week
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Get ready to "crunch the numbers" with new tax law
For the week of
June 4, 2001
Congress just passed the $1.35 trillion Economic Growth and Tax Relief Reconciliation Act of 2001. Some provisions of the new law take effect this year, while others will be phased in over the next ten years. The new law affects every taxpayer, so you'll need to consider its provisions as you do your 2001 tax planning.
- Adjust your withholding taxes. The 28, 31, 36, and 39.6 percent tax rates will
each drop by one percent on July 1, 2001. The IRS will issue new withholding tables so employers can begin to withhold
less from your paychecks.
- Instead of relying on these new tables to adjust your tax withholding, consider
updating your 2001 tax projection to include the new law's provisions. Then instruct your employer to withhold
an amount close to what you will actually end up owing for 2001. That's the best way to avoid underpayment penalties
and to prevent the IRS from having the interest-free use of an overpayment.
- Review your tax plan. In addition to a drop in the tax rates, the new law includes
provisions relating to children, education, the marriage penalty, retirement plans, estate and gift taxes, personal
exemptions, itemized deductions, and the alternative minimum tax. As a result, you should make a thorough review
of your income tax plan, your estate plan, and your retirement plan to make the most of these new tax breaks -
now and over the long run.
- Put your rebate check to good use. On July 1, 2001, the IRS will begin mailing
rebate checks to taxpayers who filed 2000 income tax returns. Your rebate will be based on your filing status and
your income tax liability last year – up to $300 for single taxpayers, $500 for head-of-household filers, and $600
for married taxpayers filing joint returns. Consider putting your rebate to work for you by:
- Paying down high-interest credit card debt. A $600 rebate check applied to an 18%
credit card balance will save you $108 in finance charges in a year's time.
- Contributing early to your 2001 IRA. Don't wait until the end of the year, or even April 15, 2002, to make your 2001 IRA contribution. The earlier you invest the money, the longer it can grow tax-deferred to help you meet your long-term retirement goals.
- Paying down high-interest credit card debt. A $600 rebate check applied to an 18%
credit card balance will save you $108 in finance charges in a year's time.
To take advantage of the many opportunities under the new law, you'll need to do some long-range planning. Give us a call for details on the new law and how it may affect you.
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and current tax information.
The information contained in this site is of a general nature and should not be acted upon in your specific situation
without further details and/or professional assistance.
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