Broker Check

March 31, 2002

Job Creation and Worker Assistance Act of 2002

     Timing is everything, and in the worst possible case of timing, the Job Creation and Workers Assistance Act of 2002 was passed and signed into law during this tax season. This required me to take away time from preparing tax returns and maintaining the regular accounting, tax, legal, insurance and stock brokerage matters to study and master the new law to see how it will affect my clients. This was done and I just wanted to complain to someone about doing it in the midst of tax season. So I am complaining to you. That said, here it is:

     The "Job Creation and Worker Assistance Act of 2002" signed into law by the President on March 9, mostly benefits businesses and professional practices. What`s more, several changes are retroactive and may affect returns that have already been filed as well as those that are about to be filed for tax year 2001 and 2000 returns of fiscal year filers with tax years ending Sept. 30, October 31, or November 30, 2001. There are several changes affecting individuals as well.

     Here`s what you need to know right now about this important new legislation:

     Tax breaks for businesses and professional practices include the following changes:

     ...An additional 30% first-year depreciation write-off for most types of new nonrealty property acquired after September 10, 2001 and before September 11, 2004. For example, if a business or practice bought a new qualifying $10,000 machine normally depreciated over five years, the first-year write-off under the new law is $4,400. Under prior law, the maximum first-year write-off is only $2,000. The extra 30% first-year write-off also applies to certain types of interior improvements to leased nonresidential realty (such as an office building or factory).

      ...The first-year depreciation dollar cap on new luxury autos bought for business purposes is boosted by $4,600, effective for autos acquired after September 10, 2001 and before September 11, 2003, that means a maximum first year write-off of $7,660 (the regular $3,060 first-year dollar cap plus $4,600). The extra write-off applies only if the auto is used more than 50% for business, and is fully available only if the auto is used 100% for business. The net result is a larger up-front deduction for those who buy new autos for use in their business or practice.

      ...The net operating loss (NOL) carryback period is increased from two or three years to five years, for NOLs arising in tax years ending in 2001 or 2002.

      ...Many tax breaks that expired at the end of 2001 are retroactively reinstated and extended for two years. These include the work opportunity tax credit and the welfare-to-work credit.

     ...Businesses operating in lower Manhattan that suffered as a result of the September 11 terrorist attacks are given a package of five new tax breaks.

     ...The maximum contribution that can be made to a SEP that is excludable from a participant`s income was increased from 15% to 25% of the participant`s compensation.

      Tax changes for individuals include:

     ...A two-year reprieve from an onerous rule that would have reduced an individual`s personal nonrefundable credits (such as education credits) because of alternative minimum tax (or AMT). Under the new law, for 2002 and 2003, you`ll be able to use your personal nonrefundable credits to offset both your regular tax liability and your AMT liability.

     ...A crackdown on S corporation shareholders prevents them from increasing the basis of their stock in the entity (and thereby being able to deduct suspended losses) by debt that`s forgiven and excluded from the corporation`s income when the entity is bankrupt or insolvent.

      ...A number of changes, mostly favorable, deal with the enhanced retirement savings opportunities created by the 2001 tax law. For example, a change makes it clear that a person can make "catch-up" contributions any time during the year he or she turns age 50, not just after the calendar date he or she attains age 50.

      ...For 2002 and 2003, there`s a new up-to-$250 deduction for teachers below the college level who spend their own money on books and other materials they use in the classroom. The new deduction is available to itemizers and non-itemizers.

      Please keep in mind that I`ve described only the highlights of the most important changes in the new law. Give me a call at your earliest convenience for more details on how you may be affected, and whether immediate action is needed to take advantage of the new law`s tax breaks. (PL 107-147)

Continuing Education

     Recently, I attended the New York State Bar Association`s Annual Meeting and went to the Trusts and Estates Law Section Annual Meeting where 21st Century Challenges for Trust and Estate Practitioners was discussed as well as how the new Multi Disciplinary Rules Affect Trust and Estate Lawyers. I also attended the General Practice Solo and Small Firm Section where Drafting and Planning Estate Plans under the 2001 Tax Act was discussed.

     If you have any questions about the foregoing or any other business or financial matters, please call us. Remember, We`re Here For You !!