TAX GUIDE FOR INDIVIDUALS

For What's New on Form 1040, Click HERE.

Individual Tax Rates

Rates apply to incomes exceeding the following levels in 2002

To determine your tax liability, use the following:

For Individuals filing Single (2002)

For Married Filing Jointly (2002)

Individual Alternative Minimum Tax (AMT)

The tax rate is 26% and additional computations must be made by adding back to regular taxable income certain deductions and exceptions to ensure that you pay the minimum tax. The rate increases to 28% for Alternative Minimum Taxable Income (AMTI) in excess of $175,000.

Capital Gains Rate

Under the new law, the minimum long-term rate has been reduced from 28% to 20% on sales held for more than 12 months. The 18 month holding period and the 28% rate has been repealed.

* 8% for individuals in the 15% bracket.

Home Sale Exclusion

Up to $500,000 ($250,000 if single) of home sale profit is tax-free on principal residences sold after May 6, 1997, if certain requirements are met. This profit exclusion may be available every two years. No loss is allowed for a home sale that results in a loss.

Standard Deductions - update to follow

The standard deduction for 1997 increases to $4,150 for single individuals, $6,900 on joint returns and $6,050 for Heads of Households.

Itemized Deductions - update to follow

Taxpayers whose adjusted gross income exceeds $121,200 will have their itemized deductions reduced. Deductions (other than medical, casualty, theft losses and investment interest) are reduced by 3% of the amount of adjusted gross income in excess of that income of $121,200. Taxpayers cannot lose more than 80% of these itemized deductions. This provision equates to a rate increase of about 1% on the higher income.

Charitable Contributions

In 1998, a canceled check is no longer sufficient as proof of a contribution made. Contributions of $250 or more require a receipt. If an item of value or service is provided, the charity must notify you of its value if the amount is $75 or more. As in previous years, contributions are limited to between 20% and 50%, depending on the type of property given and the type of organization given to. Non-deductible contributions may be carried forward up to five years.

Exemptions and Their Phase-Out - update to follow

The $2,650 exemption phases out gradually for single taxpayers whose adjusted gross income is in excess of $121,000 and for joint filers with incomes in excess of $181,000. The provision equates to about a 1/2 percentage point increase in the marginal tax rate for each exemption claimed.

Pension Plans

The 15% tax on excess distributions (over $160,000) is repealed after January 1, 1997.

Social Security Tax

In 1999, employees are subject to tax for Social Security and Medicare:

Self-employed taxpayers pay twice as much tax as that shown above. However, self-employed taxpayers may deduct one-half their Social Security tax liability for income tax purposes. This results in an equivalent tax being paid.

Estimated Tax Payments

For 1998, a tax penalty can be avoided if equal installment tax payments are made that are equal to 100% of 1997's tax liability. For 1999, that percentage is 100% for AGI under $150,000 and 105% for AGI over that amount.

401 (K) Deduction

The maximum deductible payment to a 401 (K) plan in 1998 is $10,000

Paperwork and Information

The following information should be gathered prior to preparation of filing you 1997 tax returns.

1. All wage reports (W-2)
2. All Interest and Dividend and Miscellaneous Income (including all 1099s, 1087s and year-end brokerage statements). Include all tax exempt interest income.
3. All K-1 Forms, if applicable
4. Social Security Benefits (SSA-1099), if applicable
5. List of charitable contributions with receipts (see above rule)
6. List of other deductions and back-up, if available

For information on our tax preparation and planning services, please contact us by phone, e-mail, or using the IRF below. For information on the '97 Taxpayer Relief Act, click the button labeled Tax Tips and Advice on the frame below (if showing) or click here.

MAXWELL SHMERLER & CO, CPAs

Corporate Tax Experts

(914) 681-0400

Last modified: November 15, 2002