Scott Gottlieb, CPA


105 Maxess Road, Suite N116
Melville, New York 11747

Office: 631-574-4484 or 631-253-CPA2
scott@gottliebcpa.com

 
 
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NEWS BYTES
July 2002

 

A Look at Current Federal Tax Issues

 
  • On March 9, 2002, President Bush signed the Stimulus Bill (formally called the Job Creation and Worker Assistance Act of 2002) which provides an additional depreciation bonus, allows net operating losses to be carried-back from two years to five years, special tax breaks for post September 11th New York City reconstruction, and other tax matters.

  • The above act provides for “bonus depreciation” that allows companies to write off the value of assets more rapidly.  The new law lets companies deduct an additional 30% of the value of the asset in the first year.  Assets must have a life of 20 years or less and be purchased between September 11, 2001, and September 10, 2004.  All assets must be placed in service after September 10, 2001, and before January 1, 2005.  Computer software is also covered by the same provision.  Some transportation assets get a one-year extension of the in-service deadline, to January 1, 2006.  The basis of the property and the depreciation allowances in the year of purchase and in later years must be adjusted to reflect the additional first-year depreciation deduction.

 

  • Taxpayers generally can carry-back net operating losses (NOL’s) two years.  The new law provides that the period is extended back to five years.  The losses must arise in tax years ending in 2001 and 2002.  Taxpayers will be given one opportunity to elect out of this treatment and the election is final.

 

  • Under Code section 179 you can expense assets purchased up to $24,000 in the year 2002 and in 2003 it is scheduled to increase to $25,000.  Assets may qualify for both the 30% depreciation bonus and the IRC 179 expense, thereby increasing the allowance that can be deducted on the tax return.  Taxpayers in the “NYC Liberty Zone” (World Trade Center Area) will be given an IRC 179 deduction up to $35,000.  Regarding luxury automobiles, the 30% bonus, taxpayers will be able to claim an extra $4,600 in the year the vehicle is placed into service.  The auto must be purchased in the time frame set forth above.

 

  • Taxpayers who made charitable contributions of $250.00 or more after September 11th and before January 1, 2002, will have until October 15, 2002, to obtain the required written acknowledgment from the charity to obtain evidence of a good-faith effort to obtain it.  Donors who did not receive documentation of their donation can demonstrate good-faith effort by requesting a written acknowledgement from the donee organization either by letter or e-mail.  A copy of that letter or e-mail can be used as evidence of a good faith effort.  Because of the numerous donations certain charities were unable to supply donors with the acknowledgement in a timely manner.

 

  •   The IRS has announced that it will not treat frequent flier miles as income. 

 

  • Holocaust survivors, their heirs or estates will receive the full benefit of any restitution payment made by government or industry.  Restitution payments are excluded from federal taxes and should not be included as income or listed anywhere else on federal tax returns.

 

  • The IRS has revised the mortality tables for individuals that have certain types of pension or retirement plans.  These tables give a better benefit for retirees that are required to take a minimum distribution from their Individual Retirement Account.  With new regulations, trustee and custodians for IRA’s must do the following:

    1. Provide to the IRS on Form 5498, either the amount of the annual   required minimum distribution (RMD) for the calendar year and the date by which it must be made or a statement informing the IRA owner that he or she take a minimum distribution with respect to the IRA for the calendar year and the date by which the distribution must be made and include an offer to furnish the person with a calculation of the amount of the required minimum distribution for that calendar year.  This information must be reported to IRA owners by January 31st of the year in which the RMD must be made and this is effective beginning January of 2003.  The information is basically due by January 31, 2003, based on amounts of the IRA as of December 31, 2002.
    2. For persons that need to calculate such RMD, they should use the Uniform Withdrawal Factor Table shown on page 7.  To compute the amount of RMD, you take the balance of your IRA as of December 31 for the previous year and divide it by the factor listed in the table based on your age in that year.  For example, if a person is 71 years of age and has an IRA balance of $500,000 on December 31, 2001, you would divide the balance by the factor of 26.5 that gives the result of RMD of $18,868 in the year 2002.   

 

  • New pension law requirements from the U.S. Department of Labor state that plans covering more than 100 participants attach a CPA audit to their report and that with another new rule that companies with less than 100 participants, an audit report would be required also if more than five (5) percent of the plan’s assets are invested in “a non-qualifying plan assets”.  Non qualifying plan assets are defined as Limited partnerships, real estate, mortgages, artwork, collectibles, stock held in a “close corporation”, marketable securities not in the custody of a financial institution or shares in the plan trustee’s possession rather than in “street name”. 

 

  • Section 125 plans (Cafeteria Plans) will no longer be required to file Schedule “F”.  In addition, if there are fewer than 100 participants in the plan, you also will no longer have to file a Form 5500.

 

 

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