Even with War on, Taxes Still Due, Says Local H&R Block.

Business Editors

SEATTLE--(BUSINESS WIRE)--April 3, 2003

With a war going on, you may have an even harder time than normal dealing with your 2002 tax return, say those who prepare taxes.

"We know it's difficult for people to focus, so we've prepared a handy reference list of the seven areas that could have the most impact on their tax return," says Stephen Sprenger, owner of two Seattle-area H&R Block offices. "Use these categories to look for deductions and credits when you prepare your return or ask questions of your tax advisor."

Allowable IRA contributions are higher. This one is time critical, since you have to make your IRA contribution by April 15. For both regular and Roth IRAs, the maximum contribution is now $3,000, with an additional $500 allowed for taxpayers 50 and above. Upper income limits have increased, but there are still ceilings that affect eligibility.

New Saver's Tax Credit for the low income. To encourage lower income taxpayers to save for retirement, there is now a credit for the first $2,000 put into IRA (traditional and Roth), 401(k), 403(b), 457, SEP and Simple plans. This is in addition to the adjustments given for the actual retirement plans, so you can get both a credit and a deduction. This "double-dip" also could lower your adjusted gross income to where you may be eligible for other tax credits e.g. Earned Income Credit (EIC).

New, more and greater deductions for getting an education.

-- Coverdell Education Savings Accounts (formerly Education IRAs)

have quadrupled to $2,000 for qualified expenses.

Additionally, private and religious schools, primary and

secondary schools -- even extended day programs and computer

purchases (depending on usage) -- may now be eligible.

-- The deduction for student loan interest is no longer limited

to the first 60 months of payback and the phase-out ranges for

income limits have increased.

-- There is a new adjustment you may claim for tuition and fees

paid for post-secondary education. Even if you don't itemize,

you may claim up to $3,000, but there is still a cutoff point 

for adjusted gross income.

-- Educators may now adjust their income downward by as much as

$250 by claiming out-of-pocket expenses if they worked at

least 900 hours in the field.

-- You may use more than one of the education credits (e.g. HOPE

or Lifetime Learning) or adjustments (e.g. the $3,000

deduction), but not for the same student.

The Earned Income Credit has been simplified. A foster child does not have to live with the taxpayer for a full 12 months to qualify for EIC. In joint custody cases, the government will let the taxpayers decide how the credit is divided. Additionally, Congress increased the adjusted gross income EIC cutoff for joint filers by $1,000 as a gesture to couples affected by the marriage penalty,

Weight loss program expenses may be deductible. For the first time, the IRS is allowing deductions for weight loss programs if a physician has diagnosed the taxpayer as obese or said that the weight loss is required as part of treating a specific disease.

Deductions for self-employed health insurance premiums are increased. The self-employed may now deduct 70 percent of their 2002 premiums, up from 60 percent in 2001. Next year it goes to 100 percent.

New tax tables. There's a new 10 percent tax bracket, and the higher brackets are reduced by a half percent to 27%, 30%, 35% and 38.6%, respectively. However, wages subject to Social Security tax are increased to $84,900 and there still is no upper limit on Medicare tax.

"Obviously there are many qualifications that exist for each change, and your personal circumstances will determine what's best for you, so you should talk to your tax advisor," Sprenger advised.

This information is provided by a local office of H&R Block. Approximately one in seven U.S. taxpayers uses the services of H&R Block. Stephen Sprenger is an enrolled agent certified by the IRS.