1. Roth IRA: Nondeductible contributions up to $3000 can be made to a Roth IRA. Distributions, including earnings are tax free when certain requirements are met. The contribution limit is subject to a phaseout based on adjusted gross income. You may also roll funds from a regular IRA to a Roth IRA penalty free if your AGI is less than $100,000. Rollover amount is subject to regular income tax.
2. Hope Scholarship Credit: A nonrefundable tax credit ($1500 maximum) available on a per student per year basis for each of the first two years of qualified post-secondary tuition and fees (but not books or room and board). Credit is available for you, your spouse, or a dependent who is at least a half-time student for at least one academic period. Credit is subject to a phaseout based on adjusted gross income. Lifetime Learning Credit: (Maximum $1000 credit) available for post-secondary educational expenses not eligible for the Hope scholarship credit. Generally, lifetime learning credit is subject to the same limitations as the Hope scholarship credit with the following exceptions: (1) credit is per taxpayer per year (does not vary with the number of students in a taxpayer's household); (2) credit is available for an unlimited number of years; and (3) credit is available for undergraduate, graduate, professional degree students, and other students acquiring or improving their job skills; enrolled in one or more courses. Tuition and Fees Deduction: A new deduction for 2002 is allowed for higher education expenses even if the education helps you qualify for a new job. Expenses include required costs for the enrollment or attendance at a college, university, vocational school or other post-secondary education institution. The deduction is allowed even for those claiming the standard deduction. The deduction is limited to certain threshold amounts based on filing status.
3. Student Loan Interest: You can deduct up to $2500 of interest on qualified education loans for college or vocational school expenses, even if you don't itemize deductions. Deduction applies on qualifying loans for the benefit of you, your spouse, or your dependent(s). Deduction is phased out based on AGI.
4. An IRA deduction up to $3000 is available to all taxpayers who are not covered by an employer-maintained retirement plan. Taxpayers covered by employer-maintained plans may be eligible for a full or partial deduction, depending on their adjusted gross income (AGI). The IRA deduction is completely phased out when AGI exceeds $44,000, if single, or $64,000 if married filing a joint return.
5. If only one spouse has compensation, a spousal IRA can be set up for the nonworking spouse. The total combined contributions to both IRAs (working and nonworking spouse) is limited to $6000 ($3000 for each).
6. Exceptions apply to the 10% penalty for early withdrawls from an IRA (not 401(k)if the funds are used for: (1) medical expenses in excess of 7.5% of AGI; (2) certain qualified educational expenses; (3) first-time home purchase of up to $10,000; and (4) medical insurance for those who are unemployed for at least 12 weeks. Note: IRA withdrawls are still subject to regular income tax.
7. A tax-free capital gain exclusion of up to $250,000 ($500,000 if married and filing jointly) is available for sales of principal residences if the taxpayer(s) owned and occupied the residence for two years out of the previous five-year period ending on the date of sale.
8. Certain EE savings bonds issued after 1989 are tax exempt if proceeds are used for qualified educational expenses of a taxpayer, spouse, or dependent.
9. Keep receipts supporting tax deductions for at least 4 years.
10. Improvement costs may reduce taxable profit upon sale of property. Keep records of improvement costs made to all real estate property at least 4 years after the property is sold.
11. If stock or mutual fund dividends are automatically reinvested instead of received in cash, maintain good records of all reinvested dividends each year. These reinvestments will increase your cost basis, and reduce any gain or increase any loss upon sale
12. Child care expense credit allows up to a 30% tax credit on up to $2,400 of child care costs paid for one dependent; up to $4,800 for two or more dependents. Note: Any reimbursement from an employer's dependent care assistance program reduces the above amounts dollar for dollar.
13. Taxpayers investing in certain types of passive business activities (such as limited partnerships) are limited in the amount of loss they can claim to offset other types of income. However, a taxpayer who "actively participates" in a rental activity can apply up to $25,000 in rental losses against other sources of income--subject to a phaseout rule.