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Tax cut could have big impact on savings

Practice Pointers. By Cathy B. Goldsticker, amednews contributor. July 23, 2001.

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PRACTICE POINTERS

Answers to questions about the business side of your practice

SEE ARCHIVES

Question Now that the new tax law has been enacted and while there is still ample opportunity in 2001 to make changes to my tax situation, I am interested in what will impact me and my practice.

My solo practice is established as an S-corporation, and I am married with two children. My spouse is also a physician, and we both want to set aside retirement and college savings with help from Uncle Sam. How does the new tax law help us increase these savings?

Answer On June 7, the president signed into law the "Economic Growth and Tax Relief Reconciliation Act of 2001." It is perceived as potentially the biggest tax reduction in the last 20 years, with such features as repeal of the estate and generation skipping transfer taxes, significant drops in the income tax rates over a six-year period and a midyear rate-reduction credit that will give you a tax refund check before Oct. 1.

The tax law changes are fairly complex with various tax relief phase-ins and phase-outs. Furthermore, it has a "sunset" provision, which effectively terminates the entire act's provisions beginning after Dec. 31, 2010. Nonetheless, there are tax provisions that will offer you benefits, especially in the areas of retirement and education, which should be incorporated into your tax planning.

There are several changes to the education IRA rules. Your practice is now permitted to make contributions to education IRAs. And you may now increase your education IRA contribution from $500 per year to $2,000. The act also expanded the definition of qualified education expenses to include elementary and secondary school expenses. [...]