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Ernst & Young's Profit From the New Tax Law
     

Ernst & Young's Profit From the New Tax Law

by Ernst & Young, Martin Nissenbaum, Jeffrey Bolson, Marc Myers
 
The Final Word on How to File, Save and Plan Under the New Tax Law

Now that the Economic Growth and Tax Relief Reconciliation Act of 2001 is here, isn't it time you learned how to take advantage of it? Ernst & Young's Profit from the New Tax Law explains the new legislation in an easy going and friendly way, helping you understand the new rules and how they affect

Overview

The Final Word on How to File, Save and Plan Under the New Tax Law

Now that the Economic Growth and Tax Relief Reconciliation Act of 2001 is here, isn't it time you learned how to take advantage of it? Ernst & Young's Profit from the New Tax Law explains the new legislation in an easy going and friendly way, helping you understand the new rules and how they affect someone in your tax bracket. This indispensable guide, from one of the country's leading authorities on tax planning, removes all confusion about the new law and shows you how to keep more of your money. Simple explanations and smart tips let you take advantage of the new law today while identifying your best tax-saving moves tomorrow.

Product Details

ISBN-13:
9780471083023
Publisher:
Wiley
Publication date:
10/01/2001
Pages:
288
Product dimensions:
5.51(w) x 8.49(h) x 0.84(d)

Related Subjects

Read an Excerpt

Unless it's repealed or modified by future legislation, the $1.35 trillion tax cut signed into law by President George W. Bush on June 7,2001 will touch almost every aspect of your personal tax bill through 2010.

Each year over the next 10 years, the new tax law will phase out old rates, phases in new ones, and establishes a range of tax breaks and benefits. The most significant changes include lower income tax rates, a reduction and repeal of the estate tax, higher retirement-plan contribution levels, tax-free withdrawals from education-savings plans, and some short-term alternative minimum tax (AMT) relief.

What makes the new law so unusual and challenging for individuals is how often its rules keep changing from year to year. In fact, the new law made 441 changes to the old law, and many of them pop in and out at different times like a jack-in-the-box. And the biggest pop of all is that the entire law disappears in 2011! Keeping track of these changes will be challenging while the rules themselves are sure to create confusion for taxpayers.

That's why we wrote this book. Our intention is to clarify the new tax law in terms you can understand. You'll find that the book is organized in a way that tells you what rules are changing, whether or not they affect you, and how to profit from them.

THE BIG CHANGES

Known officially as the Economic Growth and Tax Relief Reconciliation Act of 2001, the new law represents the biggest tax reduction in 20 years and provides the first drop in individual income-tax rates since 1987.

The tax law took effect on July 1, 2001, when the top four income tax rates were cut by a point. In reality, these rates will drop only a half point in 2001. Congress decided that it's easier this way, to average your old 2001 rate and your new one. Then, in 2002, the top four rates will drop another half point--giving you the full-point drop mandated by the new law.

These income tax rates will drop again in 2004 and in 2006, at which point the very top rate will have come down almost five percentage points while the other three will have dropped three percentage points. The 15% rate remains unchanged, but a new bottom rate of 10% was created.

As you probably know by now, "advance payment" checks of up to $600 began arriving in taxpayers' mailboxes in the late summer. While many have referred to the check as a "rebate," it's really an advance payment based on the taxes you'll pay next April on the income you earned in 2001. Congress doesn't want you to invest the advance payment check or use it to pay off credit cards. The government wants you to spend the money at the mall to help stimulate economic growth.

Another significant change created by the new tax law is the slow death of the estate tax. Starting in 2002, the amount an individual can pass on to heirs tax-free will gradually rise each year, while the top estate-tax rate starts to decline. For example, the current $675,000 individual exemption will jump to $1 million in 2002 and rise to $3.5 million between 2004 and 2009. The current top estate-tax rate of 55% will fall to 50% in 2002, slipping to 45% over the same period. In 2010, the estate tax is due to be repealed.

There is also a higher tax credit for families with children under age 17. This credit will rise to $600 per child in 2001, $700 in 2005, $800 in 2009, and $1,000 in 2010 and beyond.

Annual maximum contribution levels for 401( k) s and other retirement plans will start to rise in 2002, and higher deductions for married couples will begin in 2006. People who are age 50 or older will be allowed to contribute even more.

In 2002 you also will be able to withdraw assets from Education IRAs tax-free. The new law allows you to use those assets for tuition and selected costs at elementary and secondary schools as well as at colleges.

WHAT YOU NEED TO KNOW

As the income tax rates drop, you should wind up with more money in your pocket. But with more take-home pay, rising retirement-plan contribution levels, and new estate-tax rules, careful financial planning and flexibility will be essential.

For example, favorable changes in the estate-tax law mean you should review existing estate plans with your estate planner. You also will want to encourage your parents to do the same so that their inheritance wishes are in harmony with the new rules. Some trusts will still make sense. Others may not. Still others will need fine-tuning.

But don't expect all aspects of the current tax law to remain unchanged for the full 10 years. Historically, Congress has never met a tax law it liked for very long. Following the Reagan tax cut of 1981, Congress passed legislation in 1982, 1983, and 1984 that erased nearly a third of the original legislation. Then the Tax Reform Act of 1986 eliminated other tax breaks but lowered income tax rates. Between 1996 and 2001 alone, there were 1,916 changes to the federal tax code.

How significant the changes to the new tax law will be will depend on the political party that controls Congress and the overall health of the economy. For example, when the current tax cuts were first being discussed in 1999, the government expected to be sitting on a huge budget surplus. By the time the law was signed in June, the anticipated surplus looked like it might be much smaller. And don't rule out the wild card of election years, when politicians make promises that can be kept only by proposing tax law revisions.

No one knows what the future hold for the new tax law. For now, however, the law creates many opportunities for individuals, if you know how to take advantage of them. I hope you find this book easy to understand and that it becomes a quick reference guide for you in the future.

Martin Nissenbaum
Director of Personal Income Tax Planning
Ernst & Young LLP

Meet the Author

ERNST & YOUNG LLP is one of the nation¹s leading professional services firms, providing tax, assurance, and advisory business services to thousands of individuals as well as domestic and global businesses.

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