JOB CREATION AND WORKER ASSISTANCE ACT OF 2002 AND THE ECONOMIC GROWTH & TAX RELIEF RECONCILIATION ACT OF 2001 This year, tax law changes from the Job Creation and Worker Assistance Act of 2002 and the Economic Growth and Tax Relief Reconciliation Act of 2001 have added to the opportunities available to you. Careful timing of your financial transactions as the end of the year approaches and a new year begins may help you realize significant overall tax savings. Most of these tax benefits are not automatic. You must take definitive action to be entitled to --or to effectively use-- many of these tax breaks. Here's a list of some of the tax opportunities, and challenges, that you may need to consider as part of your year-end tax planning for 2002: An additional first-year 30 percent depreciation bonus for property acquired after September 10, 2001 and before September 11, 2004. An election out of the depreciation bonus can be made with respect to any class of property; Federal Net Operating Losses arising in tax years ending in 2001 and 2002 can be carried back five years. Taxpayers can elect out of the extended carryback rule and instead carry the losses forward for 20 years. California Net Operating Loss utilization has been suspended for 2002 and 2003; In 2002 Federal tax rates will drop again by 0.5 percent to the 27, 30, 35 and 38.6 percent income tax brackets. The rates for 2003 will be the same as 2002; Starting in 2002, the annual contribution limit for individual retirement accounts (IRAs) increases to $3,000, with those 50 and older allowed to make additional "catch-up" contributions; Starting in 2002, education IRAs can accept up to $2,000 each year, up from $500 in 2001; qualified state tuition programs become more tax favored; The alternative minimum tax (AMT) exemption remains at the increased amount for 2002 and 2003 ($49,000 for joint filers, $35,700 for unmarried individuals other than surviving spouses and $24,500 for married filing separately); The estate tax begins its slow decrease starting in 2002, requiring many taxpayers to revise their estate plans while adopting new gift-giving strategies. In addition to the new issues generated by recent legislation, many traditional year-end tax strategies have particular relevance this year. Here is an overview of some of the more important planning techniques that may be used: Where possible, time your income and deductions for optimum benefit. If you anticipate being in a higher tax bracket for 2003, accelerate income into 2002 and defer taking deductions until 2003. Income can be delayed through establishing deferred compensation arrangements, postponing year-end bonuses, maximizing deductible retirement contributions, and delaying year-end billings. Optimize the value of itemized deductions between 2002 and 2003. Consider whether your itemized deductions for medical expenses will exceed the 7.5 percent adjusted gross income floor, or your miscellaneous itemized deductions exceed the designated 2 percent floor. Consider deferring income if you anticipate exceeding the income level above which certain itemized deductions must be reduced ($137,300 in 2002 (for joint returns), rising to $139,500 for 2003). Compute whether you are in danger of being subject to the alternative minimum tax for 2002 or 2003 (a growing number taxpayers are subject to the AMT each year). If necessary, investigate whether certain deductions should be deferred from 2002 to 2003 and whether certain deductions are not deductible for AMT purposes. If you are in business, consider timing equipment purchases to capitalize on half-year and midquarter conventions; and take full advantage of the $24,000 immediate write-off allowable for each year, in 2002 and 2003. Time the recognition of capital gains and losses to minimize net capital gains tax (and maximize deductible capital losses). Income shifting between low-bracket family members and higher-bracket members usually starts with transferring income-generating assets before the start of another tax year, followed by careful timing of year-end sales to maximize use of the lower tax bracket. In addition, changes in circumstances, such as marriage, divorce, the birth of a child, death, retirement or an economic windfall (or set back) through the stock market, earnings or inheritance, may indicate a special need for year-end tax planning.   Some "year-end" tax strategies can be implemented in a matter of days, but others may take much longer. If you are interested in investigating what year-end tax planning will work best in your situation, please call us as soon as possible. Year-end is rapidly approaching and there is a brief window of time to consider strategies for minimizing your tax liability. If you have any questions, please do not hesitate to call.   Sincerely yours,   Audie W. Alsopp, CPA