2003 Trouble Spots
The new rules for 2003 will force us to be especially careful this year. I'll need your help to avoid mistakes. One trouble spot will be the Child Tax Credit and the rebate checks of last August. The other is anything dealing with stocks - whether gains and losses or dividend income.
Child Credit Rebates
The Child Tax Credit is a special tax reduction given for a dependent child who is not yet 17 years of age. You may remember that the $600 credit was increased to $1,000.
Gains, Dividends, & Form 1099-DIV
IRS tried to decide if you would qualify for the credit on your 2003 return. They looked at your 2002 return. If IRS decided you were likely to qualify for the credit this year, they sent the extra amount in August.
Got a Check?
If you received a check from IRS in August, we must show this is on your return to avoid claiming the increase a second time. You should have received a letter from IRS. Bring it to your tax appointment. If you can't find the information, you can locate it via computer at the IRS website. Go to www.irs.gov, from the home page go to Individuals, then to Where's My Advance Child Tax Credit. You'll need to know your Social Security number, your filing status, and the total number of exemptions claimed on your 2002 return.
These rebate checks have caused many questions. Here are the most common issues.
Got the right amount.
If you already got the extra $400 for each child under 17, when we file your return we'll claim a credit of $1,000, but since you already received the extra $400, only the original $600 will be claimed.
Got nothing or too little.
Here are a few of the cases. If the child will turn 17 in 2003, you got the credit in 2002 but will not be able to claim it in 2003 - no check for you. If your return was on extension, IRS had no return to look at - the full $1,000 credit will be claimed when we file your 2003 return. If your income was too high, the credit was lost, but we may be able to claim the full $1,000 if your 2003 income is smaller. (The credit begins to phase out at gross income of $l10,000 for couples or $75,000 for single Filers.) If your income was too low to use the full credit, there is a complex calculation which might get some of the credit back for you. I'll need to know whether you received any advance payment.
Got it - but won't qualify.
IRS based their calculations on your 2002 return. Some separated parents claim the child in alternating years. If the child was on mom's return in 2002 mom got a check. When dad claims the child for 2003 he gets a full $ 1,000 credit. IRS has said mom can keep the $400 she received!
Another scenario - your 2002 income allowed the credit, but your 2003 will be so large the credit is lost. You can keep the $400! Check Your Records! We must have the correct information on your advance rebate when we file!
The new law reduces tax rates on capital gains from 10% - 20% down to 5% - 1 5%. It also gives the same low rates to dividend income.
Get Ready in 5 Easy Steps
New Rates = New Confusion!
It sounds simple. When laws change there is a scramble by banks and brokers to learn new reporting rules. Expect errors and corrected forms from banks and brokers. Stock sales lead to capital gain/loss. But the new rates apply to sales after 5/5/03. Will your statement separate sales before and after the date? Check the year-end statement carefully here.
Dividends get the new rates no matter when received. But which kinds of dividends get the new rates? Money market accounts pay you a dividend which is really interest. Some foreign dividends don't qualify. A mutual bond fund pays interest, but it's called a dividend. IRS is still stewing over how to explain the rules. Please bring the complete statement to our meeting.
Want to save money? Don't wait until the last minute. Review your records in several short stints instead of one long marathon.
Time and Place
You don't need much time to collect your tax information. Give it 10-15 minutes now and then 10 minutes each week.
Pick a place to keep your records. Gather last year's tax return, a few envelopes, your check registers, a scratch pad, and a calendar.
Look back on 2003.
A quick look at last year's return will remind you of the things you need to collect.
Calendar and Register.
Do a review of 2003. A calendar and your check registers will help. Look for tax deductions or special events that affect your taxes.
Be sure to keep notes on items that jog your memory.
Watch for those envelopes saying "Important Tax Information."
Read each one before putting it away. If it looks wrong contact your employer.
There's a 1099-INT or 1099-DIV for any account paying interest or dividends. Did you find all of them? Check the previous page for warnings about dividend income. Keep notes.
A real estate sale is on Form 1099-S. For stock sales it's 1099-B - remember, before or after 5/5/03 is important for sales. Pensions are on 1099-R. There are several others. Be alert.
Mortgages are on Form 1098. If you have a private mortgage, Find your payment book. If you bought the property from the lender, you need their name and tax I.D. number. Form 1098-T reports tuitions leading to education credits. Student loan interest is on Form 1098-E.
You may see forms for unemployment benefits, state tax refunds, prizes, awards, or gambling winnings.
Forms K-l from partnerships, trusts, estates, and corporations arrive later. We can do the rest of your return now. Mail these forms to me when they arrive.
Most forms are sent out by January 31. In February figure out what's missing. Missing a W-2? Grab your phone! Contact the employer. If you can't locate employer. Find your pay stubs.
If some information arrives late, mail it to me. If receipts for deductions are missing, make a list of your best recollection, sign and date the list, and keep it with your records. This can help if you are audited.
What was special in 2003? A birth? Death? Bought property? Refinanced your home? Please bring complete information and documents.
This takes 5-10 minutes. How's your pile looking? Are things still sorted neatly? Check against your- list of what's missing - add entries as needed. Take a quick look at a calendar. It may help you to recall a deduction you forgot.
Those few minutes over several weeks are more effective than one long session. Your subconscious will have time to work on things you missed. It's surprising what details you will remember if you give time a chance to help you.
Put everything in order. Check your list. Write down any last-minute questions.
There are bonuses:
(1) Your effort will pay you back in the form of tax savings.
(2) Saving time means my fee will be as low as possible. I hope we have extra time for planning. I'd like to see you save even more next year!