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IT'S OVER, SO LET'S GET STARTED.

April 25, 2003

Tax season has come and gone, and only the memories, and perhaps part of your bank account, linger. With the wounds still fresh, this may be an opportune moment to draw some lessons for our 2003 tax planning.

ALTERNATIVE MINIMUM TAX IS HERE. Many of us paid Alternative Minimum Tax (AMT) for the first time. One Iowa couple with regular taxable income of about $60,000 - all W-2 income, except for a little bit of bank interest -- was driven into AMT solely because they had five children. There is no dependent exemption for AMT. A two-earner professional couple with three children and no outside business income was driven into AMT solely by their deduction for taxes paid to Iowa. This situation will only get worse. The only way to deal with such AMT problems is to project taxable income before year-end and try to time discretionary deductions and income between years.

CAPITAL LOSSES ARE YOUR FRIENDS. Well, maybe not exactly friends, but since many of us have them in spades, we may as well learn to get along with them. Whether they are carryforwards from 2002 or unrealized losses in your taxable portfolio, they can shelter taxable gains up to the amount of the loss. If you need to sell some losers to cover current year gains, don't be shy about it. Individuals can carry capital losses forward, but not back, so if you fail to use your losses to offset this year's gains, you have committed to paying taxes unnecessarily. Whether long-term or short-term, individual capital losses are deductible to the extent of capital gains plus $3,000.

USE THOSE 401(K) PLANS. If you are maximizing your 401(k) contributions, congratulations. If not, you are leaving tax money on the table. 401(k) plans are the easiest tax break available for most of us. The next time your employer's plan allows you to, increase your plan contribution. The maximum available is $12,000; taxpayers 50 and over can put in another $2,000 on top of that.

The only financial reason to fund less than your full 401(k) is if you are eligible to make a Roth IRA contribution. If you don't have money to fully fund both your 401(k) and your Roth IRA, a sensible compromise might be to fund the 401(k) up to the maximum matched by the employer, and then fund the Roth IRA.

ORGANIZE YOUR STUFF! Nothing can increase your tax-time stress (and your tax preparation fee) as quickly as poor records. Keep track of your contribution statements, W-2s, and 1099s. If you like the ponies or the slots, keep a notebook of your losses so you can shelter some of your winnings. Keep all of your tax information in one place. If you have a rental property reportable on your Schedule E, or if you have a Schedule C business, reconcile your checkbook and keep good records; better yet, buy and use Quickbooks or a similar PC-based accounting program; the fees you save will be your own.

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