1	The Economic Growth and Tax Relief Reconciliation Act of 2001
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3	The Economic Growth and Tax Relief Reconciliation Act of 2001 Overview: Largest tax cut ($1.35 trillion) since 1981 Long phase-in of tax cuts. Tax cut provisions terminate after December 31, 2010.
4	The Economic Growth and Tax Relief Reconciliation Act of 2001 Four Main Areas: Individual Income Tax Reductions Education Provisions Estate Tax Reduction/Repeal Retirement Savings Incentives
5	Individual Income Tax Reductions Tax Rate Cuts Removes Hidden Rates Family Focused Tax Cuts
6	The Tax Rate Cuts Marginal tax rate cuts across the board for individuals. New 10% bracket retroactive to beginning of 2001. Rate reductions in higher brackets begin in 2001 - fully phased in by 2006. New 10% bracket provides immediate relief.
7	The Tax Rate Cuts
8	The Tax Rate Cuts
9	The Hidden Rates Eliminates two provisions that increase effective marginal individual income tax rates Repeal of the Phase-Out of Itemized Deductions Repeal of the Phase-Out of Personal Exemptions
10	Family Focused Tax Cuts “Marriage Penalty” Relief Joint filers standard deduction twice that of singles 15% bracket for joint filers widened to twice that of singles
11	Family Focused Tax Cuts Child Tax Credit Doubles Increase credit over 10 years
12	Family Focused Tax Cuts Adoption credit permanent: increases the credit and the exclusion from income for employer-provided adoption assistance to $10,000; and, raises the beginning point of the phase-out limitations to $150,000.
13	Family Focused Tax Cuts Dependent care credit increases: maximum credit rate - from 30% to 35%; start of the phase-down at $15,000 rather than $10,000; and, limit on eligible expenses from $2,400 to $3,000 for one child and from $4,800 to $6,000 for two children
14	Alternative Minimum Tax Growing Impact on Middle Class More taxpayers subject to AMT Taxes No Change to AMT Tax Schedule Slight increase in AMT Exemption
15	Planning for Decreasing Tax Rates For 2001 Consider deferring income Accelerate tax deductions you’d take in 2002 Prepay annual charitable contributions in December; and Prepay state tax liabilities. For 2002 delay the receipt of bonuses or the exercise of nonqualified stock options; Participate in qualified retirement plans; and Participate in deferred compensation plans.
16	Education Provisions
17	Education Provisions An above-the-line tax deduction for qualified higher education expenses Definition of expenses is same as those eligible for the HOPE and Lifetime Learning Credit Cannot take deduction and claim HOPE or Lifetime Learning credits in the same year with respect to the same student. Effective for tax years 2002 through 2005.
18	Education IRA Provisions Annual contribution limit raised to $2,000. Contributions can be made up to April 15. Increases the AGI phase-out ranges to twice the range of single filers. Definition of “Qualified education expenses” is broader. Includes elementary and secondary school tuition--public and private. Effective for the 2002 tax year.
19	Education Provisions Expansion of the student loan interest deduction beyond 60 months. Raises the income phase-out. Repeals both the annual dollar limit on the amount of the deduction and the 60-month limit. Allows the deduction of voluntary interest payments. Effective for interest paid after 2001.
20	Education Provisions Section 529 plans Expanded to include approved private colleges and universities; Distributions are tax free if used to pay education expenses. Effective for the 2002 tax year for state plans Effective for private colleges in 2004.
21	Education Provisions Permanent Extension of Exclusion for Employer-Provided Education Assistance $5,250 annual employee exclusion for employer-provided education assistance was set to expire after 2001. Expands the exclusion to include graduate studies.
22	Education Planning
23	Estate Tax Provisions
24	Estate Tax Overview Modest reform / relief for next nine years No Change for 2001 Suspension (repeal) for one year (2010) Existing law and its limits return in 2011
25	Exemption Equivalents 2001 - 2015
26	Maximum Estate Tax Rates 2001 - 2015
27	Gift Tax Not Repealed Gift tax exemption increases to $1 million in 2002 but not higher Gift tax rates are reduced along with estate tax rates through 2009 Beginning in 2010, gift tax rate equals highest income tax rate of 35% Purpose is to prevent income-shifting Also subject to “sunset” in 2011
28	Modified Carryover Basis Step-up in basis rule eliminated in 2010 Carryover basis except for: Up to $1,300,000 of general basis increase can be allocated to property regardless of recipient Up to $3,000,000 of spousal property basis increase can be allocated to property passing to spouse outright or as QTIP
29	Modified Carryover Basis (continued) Exclusions Gifts within 3 years of death IRD assets
30	GST Changes 2002: Exclusion is not rolled back from $1,060,000 (2001) to $1 million in (2002) Indexing of GST Exemption continues until 2004 GST Exemption then tracks Unified Credit increases
31	Other estate changes Reduction of state death tax credit 2002 - 25% / 2003 - 50% / 2004 - 75% 2005 repealed & replaced by a deduction for death taxes Repeal of 5% surtax applicable to transfers greater than $10million 2004 brings the repeal of the family-owned business deduction.
32	Estate Planning Estate Planning is more important than ever! Create or update your estate plan Focus on Flexible Planning
33	Estate Planning Explore Gifting Strategies Annual Exclusions/Unified Credit Charitable Gifting 529 Plans Low Cost Basis Assets Record Keeping Life insurance has an important role over the next 9 years and beyond
34	Retirement Savings Provisions
35	Retirement Savings and Pension Reform Higher contribution limits for Retirement Plans. Traditional & Roth IRAs, SIMPLE IRAs, 401(k), 403(b) & 457 Plans Catch-Up Provisions Plan portability Additional highlights
36	Increase for Traditional and Roth IRA Contributions Starting in 2002 annual IRA limits will be raised Individuals age 50 or older are allowed catch-up contributions to their IRAs
37	Increase for SIMPLE IRA & SIMPLE 401(k) Plans Starting in 2002 annual elective deferral limits increase Participants age 50 or older may elect catch-up deferral contributions
38	Substantial Increases for Contributions to 401(k), 403(b), 457 and SARSEP Plans Larger plan contribution limits to retirement plans Participants age 50 or older may elect catch-up deferral contributions
39	A Tax Credit for Saving Participants entitled to a tax credit for contributions to retirement savings Includes IRAs, SEPs, SIMPLE, 401(k), 403(b) and 457 Plans Tax credit equals 50% of deferrals up to $2,000 AGI must be under $25,000 (single) or $50,000 (married / joint filer)
40	Portability of Benefits Enhanced Portability of retirement accounts beginning in 2002 Permits rollover of after-tax contributions from a retirement plan to an IRA or other type of plan Ability to rollover governmental 457 plans to IRAs or other qualified accounts
41	Additional Changes Profit sharing plan tax deduction limit increases to 25% of compensation Participant limit for additions increases to 100% of compensation up to $40,000 Plan loans permitted to owners of unincorporated businesses and sub S corporations Tax credit for plan start up costs for small businesses
42	Retirement Savings
43	Retirement Savings Employees: Take into consideration, new payroll withholding taxes will increase your take home pay in 2001 Add this increase to your retirement savings Review your employer retirement plan savings elections in November and December Make changes effective January 1, 2002
44	Retirement Savings Employers: Review your plan design and modify where necessary Do employee education seminars to encourage participation If you don’t have a plan, start one!
45	Tax Reform = Planning Multiple phase in and out provisions can cause confusion Ignoring changes may result in missed opportunity Review your situation Be prepared before 2002 gets here!