Tax Tip for May/June 2002
The
Job Creation and Worker Assistance Act of 2002
The
“Job Creation and Worker Assistance Act of 2002,” was signed into law on
March 9, 2002, right in the middle of tax season. What's more, several changes
are retroactively effective and may affect returns that have already been filed
as well as those that are about to be filed for tax year 2001.
Here's
what you need to know right now about this important new legislation:
An
additional 30% first-year depreciation write-off for most types of new nonrealty
property acquired after Sept. 10, 2001 and before Sept. 11, 2004. For example,
if a business or practice bought a new qualifying $10,000 machine normally
depreciated over five years, the first-year write-off under the new law is
$4,400. Under prior law, the maximum first-year write-off is only $2,000. The
extra 30% first-year write-off also applies to certain types of interior
improvements to leased nonresidential realty (such as an office building or
factory).
The
first-year depreciation dollar cap on new luxury autos bought for business
purposes is boosted by $4,600, effective for autos acquired after Sept. 10, 2001
and before Sept. 11, 2004. For qualifying autos bought in 2001 or 2002, that
means a maximum first year write-off of $7,660 (regular $3,060 first year
allowance plus $4,600). This means a larger up-front deduction for those who buy
new autos for use in their business or practice. The auto must be used more than
50% for business, and the full benefit of the increased dollar cap is available
only if the auto is used exclusively for business.
The
net operating loss (NOL) carryback period is increased from two or three years
to five years, for NOLs arising in tax years ending in 2001 or 2002. This change
could create additional refunds for businesses suffering losses. Related changes
help businesses with NOLs avoid alternative minimum tax problems.
For
2002 and 2003, there's a new up-to-$250 deduction for educators below the
college level who spend their own money on books and other materials they use in
the classroom. The new deduction is available to itemizers and non-itemizers.
A
number of changes, mostly favorable, deal with the enhanced retirement savings
opportunities created by the 2001 tax law. For example, a change clarifies that
a person can make “catch-up” contributions any time during the year he or
she turns age 50, not just after the calendar date he or she attains age 50.
Additionally,
starting in 2002 the percentage of compensation/self-employed earnings limit for
a SEP contribution from 15% to 25% of compensation/self-employed earnings, up to
a maximum of $40,000 per year.
Please
keep in mind that I've described only the highlights of the most important
changes in the new law. Please give me a call at your earliest convenience for
more details on how you may be affected, and whether immediate action is needed
to take advantage of the new law's tax breaks.
