PARENT1
You
have (a
child) (children) under 14. You can
elect to report unearned income of your children
under 14 on your return if (a) your child's income
is more than $750 and less than $7,500 and (b)
consists only of dividends and interest. Children
with wages, capital gains and other types of
income cannot have their income reported by their
parents.
Because of itemized deduction and personal
exemption limitations plus state income tax
considerations, we do not recommend this
procedure.
PARENT2
If
your dependent child was at least 24 years old at
the end of the year and still a full time student,
(her)(his)
income must be less than the personal exemption
amount ($3,000 in 2002 and $3,050 for 2003) to
continue to claim (her)(him)
as a dependent.
PARENT3
Listing
Social Security numbers for all dependent children
is required on tax returns. Before
filing, please check your return for
accuracy.
KIDNO
Based
on the information you supplied, your child(ren)
under 14 years old (was)(were)
not subject to tax at your top rate because (his)(her)(their)
unearned income was less than $1,500
(each).
If (his)(her)(their)
total income exceeds $750 each ($500
for WV), they must file a federal return and pay
tax.
KIDYES
Based
on the information you furnished us, your child(ren)
under 14 years old incurred federal income tax at
your highest marginal rate for
2002.")
AND
(cross out one)
We
prepared the required federal and state returns
for the child(ren). The
returns were delivered to you in an envelope
separate from yours. The 2002
liability was enough to require 2003 estimated
payments for your child.
---OR---
We
have not prepared the required returns for the
child(ren). Please
send us the necessary complete data if we are to
do them.
SSBEN
Your
2002 taxable income includes $________ of Social
Security benefits. A
computation of the taxable amount is included in
your copy of the return. The law
subjects part of your Social Security to income
taxation if your income was above $25,000
$32,000, including part of your Social
Security and tax-free interest
income.
TAXFREE
Your
return includes dividends labeled 'non-taxable' or
'return-of-capital' for: (list). Tax laws
require that these tax-free amounts reduce the tax
basis of your securities. These
'dividends' become taxable when your basis is
depleted.
Many times we have had to help clients in
the year of sale to reconstruct this data from
their records and our tax library. This can
be expensive compared to adjusting the basis
now by making these entries to your
security records.
LT
CARE
The cost
of "qualified long-term care" and insurance
coverage for such care qualify as deductible
medical expenses. There are
many restrictions regarding what is considered as
qualified long-term care and qualified long-term
care insurance coverage. Therefore,
before purchasing an insurance policy, you should
check with your agent to be sure the policy
qualifies under the new rules. If you
have previously taken the "standard deduction" on
your return, you may want to take a closer look if
you pay these premiums. Please
contact us if you would like additional
information on this subject.
REINV
When you
reinvest the dividends of a stock or mutual fund,
you should keep all of the monthly or quarterly
reports in a current file. However,
if the fund sends you an annual summary you can
keep this instead of all the monthly reports. When you
sell part or all of the shares, the cost basis of
the shares sold must be calculated. Not just
the original or subsequently invested amounts
count; the purchase amount of all dividends
reinvested also adds to your
basis.
MUTUAL
FUNDS
Many
individuals are investing in mutual fund shares in
order to diversify their portfolio. However,
you should be aware of some of the unexpected ways
in which you may create a taxable sale of a
portion of your interest in the fund. One way
this could happen is if your mutual fund allows
you to write checks against your investment in the
fund.
Every time you write a check against your
account, you have made a partial sale of your
shares of the fund. In
addition, transferring from one fund to another
fund is treated as a taxable sale of your shares
in one fund and purchase of shares in the other
fund.
SETAXDED
Since
part of your income was subject to self-employment
Social Security tax, you were allowed a deduction
from adjusted gross income equal to one-half of
that tax.
Your deduction was
$________.
SELFEMP
Because
you are self-employed (including partners and
S-Corporation shareholders), you were entitled to
deduct 70% of your group health insurance premium
($_____) directly from your adjusted gross
income.
The self-employed health insurance
deduction increases to 100% in 2003 and
thereafter.
The remainder was included as a medical
expense in your itemized deductions. For this
preferential treatment to apply, you must have
earned income from the entity, you or your spouse
must not be eligible for another employer
sponsored plan, and it must generally be a plan
that covers employees of the
business.
NOIRA
Although
you were eligible, you indicated you have not or
will not contribute to an Individual Retirement
Account (IRA) for 2002. That is
your wish, but we advise you that the tax
advantage of the deduction, combined with the
tax-free compounding of income within the fund
cannot be equaled by similar investments. You should
seriously consider it for 2003, if, under existing
rules or proposed changes, you are eligible
then.
IRA-WD
Your
IRA deduction was limited by the amount of income
on which your contribution is based. The
$________ excess must be withdrawn before you file
your return to avoid penalty on that excess. Earnings
on that excess is taxable income for 2003 and
subject to a withdrawal penalty if not withdrawn
by April 15th.
IRA-ND
Your IRA
deduction was limited by the amount of income on
which your contribution is based. The excess
was left in your IRA as a non-deductible
contribution. The
earning will continue to be sheltered by the plan
until the funds are withdrawn. See Form
8606 in your copy of the return for the
calculation of your "taxed" portion of the IRA
balance.
ROTH
IRA
A
tax-favored investment alternative is available
called the Roth IRA. The Roth
IRA will not yield deductions when you put money
in, but will result in tax-free distributions for
payouts made after 5 years if you are at least 59
˝ or because of death, disability, or the need to
pay for certain first time homebuyer
expenses.
The allowable contribution to your Roth IRA
phases out for single taxpayers with adjusted
gross income between $95,000 and $110,000 and for
joint filers, between $150,000 and $160,000 of
adjusted gross income.
A
regular IRA can be rolled over into a Roth IRA if
your adjusted gross income for the rollover year
does not
exceed $100,000 and you are not filing as
"married filing separately". The
distribution will be taxable in the rollover year
but will not be subject to the early withdrawal
penalty.
The decision to rollover your regular IRA
to a Roth IRA must be carefully analyzed. The
decision must be based on many factors and
assumptions about future events. If you
want help, we have software to guide your
decision.
EDUCPLAN
There
are many opportunities for you to begin planning
for your child's (children's, grandchild’s,
grandchildren’s) education. Some
funding options are:
Section
529 Plans
Pre-paid
Tuition Plans
Coverdell
Education Savings Accounts
UGMA
Accounts
Borrowing
from retirement plans (Not from
IRA)
Current
Cash Flow
Loans
The
first three items listed offer tax
advantages.
They offer tax-deferred growth and can be
withdrawn for educational purposes tax-free. If you are
interested in learning more about planning for
education, we would be happy to help you with this
process.
There
are two elective tax credits for higher
education.
The first is HOPE credit of up to $1,500 a
year per
student for qualified tuition paid during the
first two years of a student's post-secondary
education.
The second is a Lifetime Learning Credit per taxpayer
(as opposed to per student) equal to 20% of up
to $5,000 ($10,000 after 2002) of qualified higher
educational expenses a year, including
graduate-level education. Both
credits became available in 1998 and phase out for
those with adjusted gross income between $41,000
and $51,000 (between $80,000 and $102,000 for
joint filers).
Interest
on student loans can be deducted. The
maximum deduction is $2,500 for the year 2001 and
thereafter.
The deduction, (available to taxpayers who
do not itemize), is allowed only for interest paid
during the first 60 months in which interest
payments on education loans are required for the
year 2001.
The 60-month limitation is repealed for tax
years beginning after 2001. In
addition, the deduction is not available for
couples whose adjusted gross income is over
$115,000.
LOAN
Interest
on your broker margin
account/life insurance loan was not deducted
because it was not “paid.” It was
either taken from loan proceeds you drew down in
2002 or added to your loan balance. Until you
make a cash payment, you can't deduct this
interest.
Further, interest paid on these loans is
not deductible unless it can be traced to an
"investment interest" purpose. In your
overall planning, you should consider the
feasibility of continuing to incur interest
expense which is not deductible. Interest
on pension plan or life insurance loans is not
deductible no matter how the proceeds are
used.
VESTINT
Interest
expense is subject to various deductibility
limitations.
Some of the limitations can be avoided by
analyzing and structuring your debt. The
financial aspects must be considered, not just the
tax consequences. Your
interest expense deduction was limited by $_______
because of its character as "investment
interest".
This excess can be carried over and
deducted in 2003 subject to the limitation for
that year.
COMPENSATION
The
issue of reasonable compensation for corporate
officers, which has long been dormant, is
receiving renewed attention from the IRS. There is
no simple formula to determine how much
compensation is "reasonable". The IRS
tries to determine the amount similar companies
would pay for similar services, taking into
account the officer's duties, abilities, and
accomplishments. You may
want to consider reviewing your officers'
compensation to determine the potential for a
reasonable compensation issue being raised by the
IRS.
EFTPS
The
Internal Revenue Service has instituted the
Electronic Fund Transfer Payment System for
payments of all federal taxes for certain
taxpayers.
If your total federal payroll tax deposits
for 1995, 1996, or 1997 were $50,000 or more, you
are required to make all of your federal tax
deposits (income, payroll, and other) by
electronic transmission. For 1998
through 2001 the threshold is $200,000. Once a
taxpayer is required to make EFT deposits applying
the new threshold, all future deposits must be
made by EFT, regardless of whether the amount is
reached in each calendar year thereafter. There is a
registration period of approximately 10 weeks
prior to being able to use the system. If you
believe you will be required to pay
electronically, please contact us for additional
information and assistance.
50-50%
Entertainment
and certain meal expenses are reduced 50%. This
reduction applies before any other
limitations.
The non-deductible portion of your 2002
entertainment and meal expenses was
$_______.
SELLER
You must
report your mortgage interest expense or income
differently than in prior years. If the
seller partly financed the transaction, both the
buyer and seller must report the other's name,
address and Social Security number on the same
line where the interest is reported on the Form
1040.
HOME
Maintenance,
insurance, utilities, repairs and depreciation of
a home-office are now severely limited. It must be
the principal place you carry out your
business.
These expenses cannot create a loss from
the business in any year. However,
they can be used in following years, subject to
the same limitations. Your
unused $________ of 2002 home expenses will be
carried over to 2003 for possible deduction then,
subject to the limits for that
year.
USED
The 2002
deduction for office-in-home expenses included the
2001 suspended amount of $.
CONTRIB250
If you
make a contribution to a qualified organization of
$250 or more, you must obtain a written
acknowledgement. Without
the written acknowledgement, the IRS indicates
that the deduction will be denied. However,
separate contributions of less than $250 are not
subject to the substantiation requirement, even if
the sum of the contributions to the same charity
during the year exceed $250. If you
receive property or services in return for your
contribution, only the contribution in excess of
the fair market value of the item received is
deductible.
Be sure the charity provides you with this
information.
PHONE
Toll
charges for business calls on your home phone
continue to be deductible on Schedule C, E or
wherever the related income is reported (subject
to other limitations). However,
you can't deduct as a business expense the basic
cost of your sole home
telephone.
SEC179
For
your costing
$
we used the
tax law provision which allows up to $24,000 to be
expensed currently instead of depreciated over
years.
This election requires the equipment to be
used in a trade or business for at least two years
at no less than 50% business use each year; if it
isn't, the deduction must be recaptured. The
allowance will increase to $25,000 beginning in
the tax year 2003.
--OR--
We
didn't have you elect the tax law provision which
allows up to $24,000 to be expensed in the year of
acquisition because.......
NOLFWD
You
incurred a $________ net operating loss on your
2002 federal return and $________ on your state
return.
These can be carried over to 2003 and later
years.
The maximum carry-forward period is 20
years for NOL's incurred in tax years beginning
after August 5,
1997.
NOLBACK
A net
operating loss was shown on your 2002 return. To the
extent available, this loss was carried back to
prior returns. Claims for refund (which are to be
filed separately from your return for 2002) have
been prepared. When you
receive refunds from the IRS and from [State]
please confirm to us that they agree with the
amounts on the claim. Write the
refund check number(s) on the notices. Be sure to
send us a copy of all notices you
receive.
PASSIVE
Losses
from passive activities can offset only income
from other passive activities. Tax
credits from these projects are allowed only to
the extent a tax is created by passive
activities.
Unused losses and credits are
suspended.
They can be used against income and taxes
in future years. You had
2002 suspended losses of $________ and credits of
$________ to carry forward to
2003.
CAPLOSS
Your
2002 capital transactions resulted in a net loss,
which could be only partially used due to the
$3,000 limit. The
balance of $________ can be carried forward and
used to offset 2003 capital gains or deducted to
the extent of that year's limit. The
Schedule D worksheet showing the computation of
the short-term and long-term capital loss
carryover amounts is included in your copy of the
return.
ALLOWED
Prior
year's passive losses or credits of $________ were
used to compute your 2002 current taxable income
and suspended losses for
2003.
SITTER
Your
federal tax was reduced $________ for the
child/dependent care credit. Rules
regarding this have been in effect since
1989.
The qualifying child must be under age
13.
To qualify you must list the name, address
and tax identification number of those you paid to
provide the dependent care. The
provider should complete IRS Form W-10. If the
care is provided in your home, you may be subject
to payroll tax, workers' compensation, and in some
circumstances, minimum wage rules and withholding
tax.
NOSITTER
We did
not use amounts paid for childcare to compute this
credit because you are not reporting those wages
for Social Security and other tax purposes. Failing to
claim the income tax credit represented by
unreported wages does not avoid your
responsibility to file payroll returns. We realize
you could "lose a good babysitter", but you should
be aware of the alternative penalties down the
road.
CREDITS
You had
$_____ of (targeted jobs) (credits) (low income
housing) (other __________) carried over from
(2001 unused) (freed up from carry-back
claims).
This amount can be used in 2003 and later
years.
ITEMPERS
Your
2002 itemized deductions were reduced $________
because your adjusted gross income exceeded
$137,300 ($68,650 if "married filing
separately"). Your 2002
exemptions were reduced $________ because your
adjusted gross income exceeded $206,000 $171,650
$137,300 $103,000.
CPGNRATE
In
general, the top tax rate on long-term capital
gains remains at 20% (10% for taxpayers in the 10%
and 15% bracket) for 2002. However, a
lower capital gains rate of 18% (8% for
individuals in the 10% or 15% tax bracket) may be
applied if you held the asset more than 5
years.
If you are
in a tax bracket that is higher than 15%, the
five-year holding period only applies to assets
acquired after December 31,
2000. If you
were in the 10% or 15% tax bracket, the asset does
not have to be acquired after December 31,
2000 in order to have the five-year
period begin. The
applicable rates are determined by both the
holding period and the date of sale.
Calculation of your 2002 tax can be found
on page 2 of Schedule D in your copy of the
federal return.
ALTMIN
The
alternative minimum tax provisions created an
additional $________ of 2002 tax. This
additional tax applied to you because (insert).
CORPLIFE
Because
your corporation owns life insurance on the life
of an officer or shareholder, Alternate Minimum
Tax (AMT) could apply on the proceeds from the
policy when it is collected on death. You should
calculate the possibilities now and make a
decision.
Remember, if you transfer the policy, you
must account for the transfer in that year's
return.
There may be an adverse tax consequence
caused by transfer of the policy. If we can
help, please let us know.
2210-210
Because
your federal payments of 2002 estimated tax and
withholding did not meet the requirements, you
owed a $ underpayment penalty. We added
it to your return. In
addition, you had a state penalty of $ which was
included on your state return. A copy of
Form 2210 (IRS) and Form 210 (WV) calculating the
penalty is included in your copy of the
return.
WH-EST
The
income tax withheld from your pay was not enough
to cover the tax due for 2002. For the
rest of 2003, you should consider increasing your
monthly withholding or increasing your estimated
tax payments to avoid a possible
penalty.
NOES-MIN
Because
your expected 2003 federal tax (after accounting
for your expected withholding) is less than $1,000
and your [State]
tax less than $600, you are not required to make
estimated payments. Therefore,
we did not prepare estimated tax payment
vouchers.
If your income will be higher for 2003 than
for 2002, you may be required to make those
payments.
Please call us to assist you with this
calculation.
REFUND
Your
2002 overpayment of tax in the amount of $________
will be refunded to you by the IRS. The state
refund was $________ and may be taxable. Be sure to
include this information in your 2003
data.
ES-EX1
We
prepared your 2003 estimated tax payments based on
the prior year's tax liability. The tax
law allows individuals with adjusted gross income
of $150,000 or less to use the estimated tax "safe
harbor" based on the prior year's total tax for
all taxpayers. For 2003,
the safe harbor rate will be 110% of the prior
year's tax for taxpayers with adjusted gross
income over $150,000. Therefore,
as long as you make the estimated payments
scheduled, you may have a balance due in April
2004, but you will avoid an estimated tax penalty
for 2003.
03-UNSAFE
The
2003 estimated tax payments we scheduled for you
will not
avoid penalties unless your 2003 income is
such that the payments are 90% or more of the
final tax due. Your
scheduled estimated payments of $
(federal) and $
(state) and your expected withholding of
$
(federal) and $
(state) will not meet any of the exceptions
which will avoid penalty if you are not within 90%
of the final tax liability.
You should
review your status prior to each estimated payment
due date to provide for any adjustments that might
be necessary.
DNI
The 2002
trust accounting income to be distributed per the
return we prepared was $________. Please be
sure the total distributions actually made on
account of 2002 equal this amount. If
distributions did not agree with this amount, you
should adjust for the difference in
2003.
FIDU-ESS
We
did not prepare estimated tax vouchers for
2003.
Please let us know when you have gains in
2003 so we can prepare the necessary vouchers and
you can avoid penalties. If you
wish for us to prepare the vouchers based on the
2002 tax return figures, please let us know. This
procedure may avoid
penalties.
FIDUNEW
In
this and prior years, the trust has incurred a
penalty for underpayment of estimated tax. In some
instances, the IRS has not billed you. Because
this penalty is the responsibility of the
fiduciary (not the trustee), we believe it
important that it be avoided. Thus, we
have prepared vouchers showing an estimated tax
for 2003 approximating the 2002 liability. This will
avoid the penalty, if there is a similar tax in
2003.
If
you do not believe the trust will incur a tax for
2003, you do not have to file this form and pay
the installment. Please
inform us if you do not make the payments as
scheduled.
[State
Non-resident Withholding Income Tax
Form]
State
law - requires all [State]
partnerships, S-Corporations, and fiduciaries to
withhold a X%
state income tax from the distributions to
partners, shareholders or beneficiaries who are
not residents of [State]. The tax on
non-residents applies to income from a trade or
business carried on in [State]
and income or gains from property (including
rents, coal, oil and gas royalties or production)
located in the state. It does
not apply to portfolio income. An
election can be made to exempt a non-resident
taxpayer from the withholding procedure (not the
tax) by filing Form [State
Non-resident
Withholding
Income
State Form]
with the state. A copy of
the form is enclosed for your use. Call us if
we can be of assistance.
CLEAN
In the
past, much of the news involved the requirement to
file payroll tax returns on domestic helpers. You are
required to file with the IRS if you have paid
$1,300 in a year to any person. You are
now required to report this information on a
schedule attached to your individual income tax
return.
In addition, Form W-2's must be provided to
the employee by January 31. Once you
have met that requirement you are responsible for
reporting on the return, all persons who work at
your home if they are not clearly independent
contractors.
If you would like a further explanation or
help with filing future or prior year's returns,
call us.
1099
The IRS
requires filing Form 1096 and furnishing Forms
1099 when you have paid $600 or more to suppliers
of services and independent contractors in your
business or $10 or more of business interest. In
addition to this, you are now required to file a
Form 1099 for attorney fees when you have paid
$600 or more, even if the law practice is
incorporated. Call us if
you believe these requirements apply to
you.
SCHC&E
We want
to remind you of the required annual filings
relating to your business income (Schedule C) or
rental income (Schedule E). The state requires
anyone doing business in the state (including
renting) to register by July 1 of each year. This often
requires the payment of a $15 fee. Also, if
your business or rental property is within city
limits, you may be required to file city business
and occupation returns. Please let
us know if we can assist you in filing these
returns.
SALESUSE
Because
of the many changes in the [State]
consumer sales and use tax rules by the
legislature in the last few years, you should
review your current system for collecting and
remitting any tax due on the sales or services you
provide.
In addition you should be sure that your
purchases are properly taxed or exempted as
applicable.
If we can assist you please let us
know.
ESTPLAN
Reviewing
your taxes each year provides you a good
opportunity to also review your current estate
plan and documents. You should
take time to review your current plans and
documents to factor in any changes that have
occurred.
For example, births, deaths, changes in
marital status, changes in assets and values,
etc.
Good estate planning must consider your
personal goals and needs, your family and their
needs, and consideration of how you want your
estate to be distributed with the minimum
cost.
We will be glad to assist you in reviewing
your estate situation and goals. Along with your
attorney, we can help you design an estate plan
that accomplishes your desires with the least tax
and administrative cost. Please let
us know if we can help.
DEPRVW
Please
review the depreciation schedule attached. Be sure to
notify us if any assets are disposed of during the
coming year.
This schedule should reflect only assets
which you still possess. If you
have abandoned an asset, please let us know so we
can remove it from the depreciation schedule for
the next year.
This
schedule is also very important with regard to
property taxes. It must be
attached to the County Personal
Property report
required of all businesses as of July 1st each
year.
If we prepare this report for you, we
should be informed of any acquisitions or
disposals at the same time you send us the forms
you received from the Assessor. Because
every asset listed on your schedule
will
be taxed on your next property tax bill, you
should be sure this list is accurate and does not
contain assets no longer in
existence.
MINDOC
Corporate
minute books and documents are required and
important records, which relate to your tax status
as a corporation. They
should be kept up to date so that matters which
affect tax elections, deductions or other
treatment will be properly included in the minutes
of meetings of directors and shareholders. For
example, discussions about the amount of salary
increases or bonuses for officers, any
profit-sharing pension plan contribution for the
year, major capital expenditures and the year's
financial results are some of the items, which
should be in that record. You should take time
also to review other corporate documents to be
sure they are up to date. (For
example, buy-sell agreements, employment
contracts, leases, etc.) With your attorney, we
will be glad to help you.
CHANGES
Every
new tax law changes the way many items of income
and deductions are reported or how a transaction
can be structured. You should
become familiar with these changes before you
consider any transaction, especially when the
financial reward relies partly on the tax
effect.
We will be glad to help you with answers to
questions or in any other way aid you with
solutions.
RJTCLOSE
If
you have any questions or we can be of further
assistance to you, please let us
know.
Very
truly yours,
[Partner’s
Name]
