Under the new tax law passed by Congress and signed by President George W. Bush, the Tax Relief Act of 2001 eventually will lower the current 28, 31, 36 and 39.6 percent brackets to 25, 28, 33 and 35 percent. The existing 15 percent bracket will be divided into a 10 and 15 percent tax bracket. The 10 percent bracket will be retroactive to the beginning of 2001, providing an immediate tax benefit. The new 10 percent bracket will encompass the first $6,000 of taxable income for singles and the first $12,000 for married couples filing jointly.
Phase-In of Child Tax Credit
For Taxable Year:
The Credit Rises to:
Everyone who pays taxes will benefit from immediate relief as a result of the 10 percent bracket. This relief, in the form of refund checks, hopefully will put money back into the taxpayers' pockets in order to boost the economy. Rebates will range up to $300 for singles and $600 for married couples. Most taxpayers will receive their rebates in the form of a check before Oct. 1, 2001. If your tax return is on extension, your check should arrive in 2001 (if you file by the extension due dates).
Following are some other highlights of the tax relief act:
The earned income credit will be increased, providing a refundable tax credit for lower-income wage earners and increasing the parameters of the earned income phase-out range, by up to $3,000 for married couples after 2007. The current parameters will increase by $1,000 in 2002, and by another $1,000 in 2005.
Those who make estimated tax payments will be able to reduce the payment they would otherwise make. Careful estimated tax planning will minimize overpayments.
Currently, married couples have their income taxed to a greater or lesser degree than that of singles who are comparably compensated depending on the relative share of income earned by each spouse. The act reduces this "marriage penalty” gradually beginning in 2005.
The child tax credit will increase from $500 to $600 starting in 2001 and will go up to $1,000 by 2010.
The Tax Relief Act will also increase the dependent care credit and make the adoption credit permanent.
If you use your vehicle in your business, you can figure your deduction for business use based on either your actual costs or the standard mileage rate. For 2001, the standard mileage rate for the cost of operating your vehicle, including a van, pickup or panel truck, is increased to 34.5 cents a mile for all business miles.
Income tax projections
A tax projection is a "crystal ball” for the self-employed. When doing a tax projection, your tax professional utilizes your actual income and expense figures for a portion of the year, as well as current tax information, to calculate and project your tax liability for the year. Having this information before the end of the year can mean the difference between success and failure for many of you.
As a business person, you need to know in October whether you will owe money the following April to the IRS or if you are going to be receiving a refund. You need these answers in order to be able to plan your business decisions for the next six months concerning the purchase of a new truck, doing a major overhaul, fixing up your home, planning retirement or just taking time off. Your tax position can best be determined by your tax preparer so that potential problems can be spotted or estimated tax payments can be adjusted. A projection based on your actual operations through July, August or September can leave you enough time until the end of the year to do proper tax planning.