TAX ADVICE from Julian Block
tax advisor and Larchmont neighbor, Julian Block, provides
help for Gazette readers
>Important Tax Changes for 2003
>Bonus Wealth: Overlooked Tax Breaks
Important Tax Changes for 2003
by Julian Block
(April 7, 2004) There have been lots of changes in the tax rules. Many of
them are mandated by
indexing – that is, annual upward adjustments to provide relief from inflation,
as measured by increases in the Consumer Price Index. What follows are the highlights
of several changes that might affect freelance writers and other self-employed
You get a bigger break
just for being you. Exemptions are worth $3,050 apiece for
2003, up slightly
from $3,000 for 2002.
REDUCTIONS OF EXEMPTIONS
For upper-incomers with AGIs
(short for adjusted gross income, the figure on the last
line of page one of Form 1040) above certain
the deductions for all exemptions -- including those for a spouse and dependents
-- gradually decline. For 2003, the exemption phase-out begins when AGI exceeds
$139,500 for singles, up from 2002's $137,300; $209,250 for joint filers,
up from $206,000; $174,400 for heads of household, up from
$171,650; and $104,625
for marrieds filing separately, up from $103,000.
PARTIAL DISALLOWANCE OF ITEMIZED DEDUCTIONS
deductibles must be reduced by 3 percent of the amount
by which your AGI surpasses a specified
-- $139,500 for 2003, up from $137,300 for 2002. Put another way, you forfeit
$30 in total 2003 deductions for every $1,000 of AGI above $139,500 if you
are single or filing jointly. The $139,500 figure drops to $69,750 if you
and file a separate return; going that route does not raise the threshold
for a couple to a combined $279,000.
The standard deduction is the no-proof-required
amount that is automatically available without having to
itemize for outlays like
donations and real estate taxes. Just how much of a standard deduction
you get depends on your filing status.
The normal standard deductions increase slightly to $7,950
for joint filers, up $100 from 2002's figure; $3,975 for
marrieds filing separately, up $50;
$7,000 for heads of household, up $100; and $4,750 for singles, up $50.
EXTRA-LARGE STANDARD DEDUCTIONS
FOR THE ELDERLY AND BLIND
For those individuals who are at least 65 by the close
of the 2003 tax year, the standard deduction
increases by $950 for a married person (whether filing jointly or separately)
and $1,150 for an unmarried person. Persons who are considered blind
are entitled to those additional amounts or double those
amounts if they are
both 65 and
CAUTION. Special rules lessen the deduction amounts allowed
individuals (children, mostly, or elderly parents) who can
be claimed as dependents
on the returns
of other people. The standard deduction can be as little as $750.
Wealth: Overlooked Tax Breaks
Here are some reminders of often- overlooked tax breaks.
Despite tax reform, you remain able
to deduct 100 percent of the interest charges on up to
incurred to buy, build or improve
your year-round residence and one other home, such as a vacation retreat.
You may also deduct 100 percent of the interest charges
on up to $100,000 of home
equity loans, without any restrictions on the use of the loan proceeds.
Mortgage points are 100 percent deductible in the year
of payment, provided you pay them to obtain a loan to buy,
build or improve (as when you add or
a room) your “principal residence” (legalese for a year-round home),
as opposed to a vacation retreat or property for which you charge rent. There
is no immediate deduction for points paid to refinance (with none of the proceeds
used to pay for improvements) a mortgage on your principal residence. The points
are deductible over the life of the loan.
Do you have a family business?
Put your youngsters on the payroll to perform chores such as clerical
work or deliveries; let the business pay them compensation
that it deducts and which they report on their returns. Hiring your
children provides a way to keep income in the family, but shift some
out of your
higher bracket and into their lower bracket.
TAX SAVVY CHARITY
A tax-savvy way to make charitable contributions
is with appreciated properties – shares
of stocks or mutual funds, real estate or other investments that
have gone up in value since their purchase and that you have owned
than 12 months.
Besides garnering a deduction for the property's full market value,
you also escape paying taxes on the accumulated gain in value since
you made your investment.
But check with a tax pro on when and how much to give before you
make sizable contributions.
To qualify for a moving-expense deduction, the key requirement
is that the new job
location must be at least 50 miles farther from your old residence
than the old job was. An example: If the distance between your
old home and
miles, the distance between your old home and your new job has
to be at least 70 miles. But you've some leeway on that 50-mile minimum.
the mileage on the basis of a straight line on a map. You can
calculate the mileage on the shortest of the routes you'd ordinarily
BUSINESS EXPENSES -LARGE AND SMALL
The law allows you to deduct nonreimbursed employee business expenses
-- say, a brief case to carry business papers to and from work,
searching for a new job
in the same line of work, and work clothes and uniforms that
are required as a condition of employment and are unsuitable for
everyday use. These kinds of
expenses fall into the category of miscellaneous expenses, allowable
just for the part above 2 percent of your AGI, adjusted gross
income. AGI is the amount
you list on the last line of the first page of Form 1040.
Medical expenses are allowable only for the
part above 7.5 percent of your AGI. If you do overcome the 7.5 percent
hurdle, remember to include travel to
doctors, dentists and the like. For car trips, you can simplify
the paperwork and claim 12 cents per mile for 2003, down
from 13 cents for 2002, plus parking
fees and bridge or highway tolls.
Previously, medical deductibles included the cost of purely
cosmetic surgery. Now, however, no deductions for procedures
such as facelifts,
hair removal (electrolysis), tush trims and liposuction. The
IRS cautions that the
cosmetic surgery must be necessary to improve deformities arising
from, or directly related to, congenital abnormalities, personal
arising from accidents
or traumas, or disfiguring diseases.
What about procedures done for both medical and cosmetic
reasons? Presumably, the IRS will not dispute payments for
breathing problems and eyelid operations needed because heavy
lids obstruct vision.
But expect the IRS to frown on write-offs for Botox injections,
even for aging
TV anchors who believe their careers are jeopardized if they
do not look at least
as young as their competitors.
Fortunately, the IRS does not always have its way. The
Tax Court okayed an exotic dancer’s business-expense deductions for the cost of breast implants that
enlarged her bust size to 56N (this is not a misprint). Post-surgery, she immediately
experienced a surge in earnings. A sympathetic court reasoned that for someone
like an exotic dancer, breasts are business assets and implants are a necessary “stage
DO YOU VOLUNTEER?
Do you volunteer to help raise money or perform other
chores for charities? No deduction for the value of your
time and services, though your volunteer work
does entitle you to deduct nonreimbursed out-of-pocket expenses
-- say, travel (14 cents a mile for car use for 2003, unchanged
from 2002) and telephone calls,
as well as the cost and cleaning of uniforms not adaptable
to ordinary wear that you're required to wear while performing
When you go on a business trip (36 cents a mile for
car use for 2003, down from 36.5 cents for 2002, if actual
expenses are not claimed), forget about any
deduction for expenses of an accompanying spouse who tags
along just for fun. But suppose you stay at a hotel where
rooms go for $150 for a single and $170
for a double. You're entitled to a per-day deduction for
your hotel room of the entire single rate of $150 -- not
half the double rate, or $85.
WASH SALE - MORE THAN LAUNDRY
The "wash sale" rule
bars a current deduction for a loss on a sale of shares of
back, unless at least 31 days elapse
between the sale and the repurchase. But this restriction
doesn't apply to a profit on a sale of stock. You are free
to take your profit and immediately reinvest.
ENTERTAINING AT HOME
Home entertaining qualifies as a business-expense deduction as long as you
satisfy either of two requirements. It must be "directly related" (business
is discussed during the entertaining) or "associated with" (the
entertainment directly precedes or follows a substantial
and bona fide business discussion)
active conduct of business. There's a noteworthy exception
when you're host to business guests from out of town. You
can deduct entertaining that takes place
the day before or after the business discussion.
Julian Block is a syndicated columnist, attorney and former
IRS investigator who has been cited by the New
York Times as “a leading tax professional” and
by the Wall Street Journal as an “accomplished writer on taxes.” His “Tax
Tips For Freelance Writers” shows how to save truly big money on taxes – legally – and
explains the steps you should take to reduce taxes for this year and even gain
a head start for future years. Send $9.95 for an e-mailed copy or $12.95 (in
the U.S.) for a postpaid copy to: J. Block, 3 Washington Square, #1-G, Larchmont,
NY 10538-2032. Contact him at email@example.com.