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2001 — NEW MILLENIUM CHANGES IN THE TAX LAW IN A NUTSHELL

Charles E. Gebhardt, CPA, CVA
Jan 2001

Please note that this paper is a synopsis of tax rule changes and is not intended to be an authoritative guide. Please consult us before relying on anything contained in this paper.

  •  Good news for accrual basis taxpayers — the prohibition on the use of the installment method by accrual basis taxpayers effective for sales after December 15, 1999 has been repealed retroactively.

  •  New 18% capital gains rate available for capital assets acquired after January 1, 2001 and held 5 years or more. (See our separate analysis on special planning opportunities available on this matter).

  •  Standard mileage rate for business use of autos increased to 34.5 cents per mile beginning in 2001.

  •  Self-employed individuals may write-off $24,000 of depreciable asset purchases beginning in 2001, up from $20,000 in 2000.

  •  Maximum annual contribution rate to employer sponsored SIMPLE-IRA increases from $6,000 to $6,500 in 2001.

  •  Self-employed individuals may contribute up to $35,000 to a Keogh plan, up from $30,000 in 2000.

  •  Contributions to employer sponsored 401k plans remain at $10,500 for 2001.

  •  The maximum amount of wages or self-employment income subject to Social security tax is $80,400. Medicare taxes continue to apply to all earned income.

  •  High income taxpayers having adjusted gross income over $150,000, must pay in the lesser of 90% of 2001 tax or 110% of 2000 tax in withholding or estimated taxes to avoid penalties in 2001.

  •  Student loan interest is increased to $2,500 cap in 2001, up from $2,000.

  •  Even kids get a tax break with up to $750 in investment income escaping taxation. The next $750 is taxed at the child's tax rates and only amounts in excess of $1,500 will be taxed at the parents' tax rates.

  •  Break for New Millennium Luxury Car Buyers — the luxury item excise tax decreases to 4% from 5%. The excise tax is applied to the amount of a new car purchase that exceeds $38,000.

  •  Medical Savings Accounts that were scheduled to expire in 2000, have been extended an additional two years.