Gimme A Break
Here are some tips for winning the annual battle with the IRS
Because larger SUVs weighing over 6,000 pounds, such as the Ford Expedition and Toyota Land Cruiser, fall under the rules for trucks, the depreciation write-off for these vehicles can be several times as much as for a car. But despite publicity over this potential bonanza, remember that the deduction rests on using the SUV for business.
Education can pay off for parents on their tax return. Starting for 2002, up to $3,000 can be deducted for college and vocational school tuition. One catch: The deduction can't be claimed for a student who also benefits from either of two older forms of relief--the Lifetime Learning credit ($1,000 for 2002; $2,000 for 2003) or the Hope credit ($1,500 for 2002 and 2003). Because the credits directly offset tax, they are usually a better choice than the deduction, which reduces the income upon which tax is paid. But the deduction, available even to nonitemizers, may be useful for upper-income parents who are barred from the credits--which begin to phase out for 2002 when income tops $41,000, or $82,000 on a joint return. The deduction, by contrast, is available until it ends abruptly when income tops $65,000, or $130,000 on a joint return.
Saving for school. The education IRA has been refurbished under its new name of Coverdell Education Savings Account, in honor of the late Sen. Paul Coverdell of Georgia. The top annual deposit for each future student beneficiary is now $2,000 instead of $500. And the funds can be used for kindergarten through college. There's no deduction for deposits, but withdrawals of earnings are tax free when used for tuition, lodging, books, and other items. Another plus: Tapping the account no longer bars using a Hope or Lifetime Learning credit for other costs. Eligibility to make deposits has been eased--it doesn't start to phase out until income tops $190,000 on a joint return (the old level of $95,000 on a single return remains). You can make a deposit by April 15 that counts for 2002, then make one for 2003.
Graduates facing the burden of student loans can take a yearly deduction of up to $2,500 for the interest. In a big easing, the interest is now deductible for as long as it takes to pay off the loan, not for only up to five years. Also, the income at which eligibility begins to phase out is increased to $50,000 for 2002, or $100,000 on a joint return. (Parents who took out loans may also qualify for this deduction.) And nonitemizers can claim student loan interest on top of the standard deduction. Marriage penalty: The overall maximum on a joint return is $2,500 even if both spouses are repaying loans.
When day care instead of education may be the big expense, an expanding tax credit can help parents who pay for child care so they can hold a job. For 2002 expenses, middle-income parents can typically take a credit of $480 for one child under age 13 and $960 for two or more. For 2003, the benefit will be bigger--at least $600 and $1,200, respectively, but higher when income is below $43,000. And here's a tip: Day camp in the summer, when necessary to allow parents to work, counts as a deductible expense.
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