Magazine

Three More for Your Checklist


The tax package has many other features, but many don't take effect this year. Of those that do, these three may be worth your scrutiny:

-- THE AMT. Every silver lining has a dark cloud--and the shadow on the 2001 tax cut is the alternative minimum tax. It's a parallel tax code designed to catch fat cats who use exotic tax breaks. Trouble is, lower ordinary rates after the 2001 tax cut will cast more taxpayers into the AMT net because their tax bill likely will drop to a level below the "minimum." So if your income is over $150,000, you may have to run through a second tax calculation that takes away such breaks as deductions for state and local income taxes. "It's like not getting a tax cut after all," says Don Weigandt, vice-president of J.P. Morgan Private Bank in Los Angeles.

-- DEEMED SALES. If the stock market hit you hard in 2001, use some losses to reduce taxes in 2006. Under a 1997 law, investors can get a lower tax rate on capital gains--18% instead of 20%--on property held five years or longer. But that applies only to assets acquired after 2000. For assets bought earlier, you have a one-time chance now to start the five-year clock by pretending that you sold and repurchased them on Jan. 2, 2001. This "deemed sale" requires you to pay taxes now on gains through 2000, in exchange for getting the two-point rate break after 2006. Here's where the 2001 losses come in. If you have more net losses in 2001 than the $3,000 deductible against ordinary income, you can use those to offset gains on the deemed sales. "If you have stock you're certain to hold until 2006, this can make sense," says Steven Hurok, tax director for accountants BDO Seidman.

-- ADOPTION TAX CREDIT. Thinking of adoption? You have a lot to gain in 2002. The adoption tax credit doubles, covering up to $10,000 of expenses. A single parent or married couple earning up to $150,000 can take the full credit. Those with income of up to $190,000, up from $115,000 in 2001, get a modified benefit. Employers offering adoption assistance can defray $10,000 of expenses without tax consequences for the employee, up from $5,000. But you must choose between this benefit or the credit. By Mike Mcnamee


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