Congress has been creating yet another tax relief bill. The new bill still needs massaging in the House and some discussion in the Senate before they pass it on to the President for signing.

Their first idea was to issue another rebate. This idea was deemed futile. Just to print and mail another batch of rebate checks before Christmas would cost over $50 million and would require even more IRS staff. The phones are still ringing off the hooks with calls from people with questions on the first rebate. Taxpayers who are in a hurry to get a refund will be encouraged to file their tax returns early.

[NOTE: You can also file a new W4 with your employer increasing your withholding allowances to 9 for the remainder of the calendar year to take a little more home for the holidays.]

The provisions of the bill as it is currently written include:

• acceleration of the phase-in of the 25 percent marginal tax rate (from 27.5%)
• a reduction in capital gain rates from 20 and 10 percent to 18 and 8 percent (though that may not be retroactive to the beginning of the year)
• a temporary increase in the dollar limit for offsetting net capital losses against ordinary income to $4,000 for 2001 and $5,000 in 2002 (current limit is $3,000)
• a temporary expansion of penalty-free retirement plan distributions to pay for health insurance premiums of the unemployed

STREAMLINED SALES TAX

The governors of some 42 states have been discussing what they could do to tap into the currently tax free Internet sales. Some version of Streamlined legislation has already been introduced in 29 state legislatures.

On August 8, 2001, North Carolina became the 17th state to enact legislation aimed to simplify their state sales tax system. Governor Mike Easley (D), signed S.B.144 into law, an act that enables North Carolina to enter the Streamlined Sales and Use Tax agreement. Other states that have signed bills include Arkansas, Florida, Indiana, Kentucky, Louisiana, Maryland, Minnesota, Nebraska, Nevada, North Dakota, Oklahoma, Rhode Island, Tennessee, Texas, Utah and Wyoming.

[Editor: What's this all about? Watch out, states are gearing up so that when you shop online or by mail-order, you will soon be charged sales tax for your own state. The moratorium against sales taxes on Internet sales ended in October and Congress has not reenacted it.]

2001 STANDARD MILEAGE RATES

The optional standard mileage rates, used to compute the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes, have been set. These were be effective as of January 1, 2001.

The standard mileage rate for the cost of operating a car for business use is 34.5 cents a mile up from 32.5 cents per mile in 2000.

The standard mileage rate for a car when giving services to a charitable organization will stay at 14 cents per mile.

The standard mileage rate for the use of a car for medical reasons is 12 cents per mile, up from 10 cents.

The standard mileage rate for the use of a car when computing deductible moving expenses is 12 cents per mile, up from 10 cents.

REDESIGNATE YOUR ESTIMATED TAX PAYMENTS

IRS Announcement 2001-112 states that if you have a business paying employee payroll taxes and you expect your income for the 2001 tax year to be lower than you'd previously estimated because of the economic downturn caused by the 9/11/2001 terrorist attacks, you can redesignate as payroll taxes any excess estimated income taxes you've paid.

Taxpayers can opt for the redesignation by contacting the IRS at (866) 562-5227.

[Editor: Any unconverted excess paid will be refunded when you file your business tax return due in March (Corporate) or April if you are on a calendar year.]

PAY YOUR FEDERAL TAXES VIA THE INTERNET

Previously the Electronic Federal Tax Payment System, (EFTPS) had been used only by businesses, but now individuals can use it to pay all their federal taxes online.
http://www.eftps.gov/

If you are currently making quarterly estimated tax payments (using form 1040 ES) or expect to in the future, EFTPS is for you. You can set up your quarterly payments for the year and they will automatically be deducted from your account on the day you choose. EFTPS-OnLine is the same, easy to use system as the telephone and PC software versions of EFTPS, but it also includes new features. You can also review your tax payment history and print out payment confirmations. The new system should increase accuracy, make timely payments easier and less stressful and require less paperwork.

For enrollment information go to: http://www.eftps.gov/, or call 1-800-945-8400 or 1-800-555-4477. Once enrolled it takes 2-4 weeks to validate the information. Enroll today and start using the benefits of EFTPS this year.

2.      JOKE OF THE MONTH

The taxpayer -- that's someone who works for the federal government but doesn't have to take a civil service examination. -- President Ronald Reagan, (1911-    )

Sure, they do. They work:
20% on Monday
25% on Tuesday
25% on Wednesday
25% on Thursday
15% on Friday

3.      TAX TIPS

The tax reduction bill of July 2001 reduces rates gradually over the next several years. Therefore, income you receive this year will cost you more in taxes than next year; expenses you deduct this year will save you more than next year. Plan NOW to take advantage of a few things you can do to cut your taxes for 2001. DON'T wait until after Dec 31 when it will be too late.

• It would be a good idea to DELAY taxable INCOME into next year when the tax rates will be lower. If you know you have some discretionary income coming in December, ask the payers to hold off paying you until January. Or if they need the deduction in 2001, have them wait until Dec 28 to mail a check to you. It will be deductible to them when they pay it, but not income to you until you physically receive it after Jan 1, 2002. By lowering your adjusted gross income (AGI), you will also reduce the minimums you must meet to take advantage of medical and misc. deductions.
• If you have a tax deductible retirement plan (SEP, Keough, or Standard IRA) pay as much as you can into it. If you don't have one of these plans, you have until Dec 31 to set one up. You can contribute 2001 funds into your IRA up to the date you file your return or April 15, 2002, whichever is earlier. If you are covered by an employer-paid plan or are self-employed and contribute more than $2,000 into a SEP or Keough, you can't deduct any payments into your IRA, but you can still contribute to it and have taxes on the earnings deferred until you withdraw it at retirement. You must report any nondeductible contributions on Form 8606.
• Prepay some deductible bills. Make sure that itemizing will generate more in tax savings than the standard deduction, otherwise take the standard deduction this year and postpone payment of deductible expenses into 2002. Prepaying 2002 deductible expenses over the next two months will reduce your tax bill for this year, but may not give you enough deductions next year, so calculate which year will give you the most benefit from that money.
• If you are close to the cut off for medical or miscellaneous deductions, load more into 2001 while tax rates are higher than they will be for 2002.
• If you are using a medical reimbursement plan through work - review your bills. The big disadvantage to these plans is that if you have $1,000 deducted from your pay to spend on medical for the year, and you only spend $500, you lose that other $500. Review NOW how much you've contributed and how much you've used in expenses. If you have money left in the account, make some appointments with your doctor or dentist for a checkup. Get a 90-day Rx for any medicines you take. Get new glasses or contacts. Have your teeth cleaned or get that filling you've been putting off. Want elective surgery, like laser eye surgery, lipo or breast modifications? Put a down payment on it to use up your account balance. You can schedule the surgery for next year - and pay the balance from next year's medical reimbursement plan.
• Estimate and prepay your 2001 state income tax so you can deduct it this year along with any you paid during 2001 for the previous year. Most states have a special form which you can request.
• Prepay 2002 property tax on your house. Most counties will be more than happy to have you prepay all or part of your next year's tax.
• Pay January's mortgage payment early. Make sure the mortgage company knows it is a regular payment of principal and interest, not a special payment to be applied to principal only.
• Sell stocks with losses that you don't expect to recover. If you bought the stock at intervals, you can instruct your broker to sell specific shares of stock. If you sell the most expensive shares, your reportable losses will be higher, and the lower-priced shares may recover and can be sold after the tax rates drop further next year.
• Go through closets and donate unused items to charity. Make a list of everything you donate along with its fair market value. If it's new stuff, you can claim the price you paid. If it is used you can claim the price at which a thrift shop would sell it. Get a receipt from the charity for your records.
• Donate your car! Got an old car that needs more in repairs than it's worth? Donate it to a charity. The charity can sell it to a salvage yard. You can claim fair market value (at Blue Book or its depreciated basis if you've used it for business).
• Don't overlook indirect charitable contributions. You can claim mileage at 14-cents per mile for that trip to and from the blood bank, any out of pocket expenses such as parking, and if you went out of town overnight to participate in a charitable activity, you can deduct lodging, meals, and travel expenses as long as you paid for them yourself.
• No cash to prepay? It might be advantageous to prepay some expenses on a credit card, especially if you can take advantage of any of the "0% interest for six months" offers you are probably receiving in the mail. Just be sure you pay off the balance on the card by the time you would have normally paid the expense you are charging. You get the deduction as of the date the expense is charged, regardless of when the credit card payment is due.

4.      DEBT AND CREDIT

According to recent studies, Americans spend, on average, 10% more than they make each year. Bankruptcies are rampant as people become overwhelmed with debt.

Next Month: Debt Elimination Game - Yes, getting out of debt can be fun!

5.      RESOURCES

Here is a great site with online calculators for loan, auto and home purchase, debt reduction, etc.