For details on the changes for 2002 and 2003, see Pub. 553.
Free Internet Filing Options. Visit the Free Internet Filing Homepage at www.irs.gov to access commercial tax preparation software and e-file services available at no cost to eligible taxpayers.
Tax Rates Reduced. Most of the tax rates have decreased by 1/2% and a new 10% tax rate applies to all filers.The new rates are reflected in the Tax Table that begins on page 63 and the Tax Rate Schedules on page 75.
Schedule B--Fewer People Have To File! You may not have to file Schedule B if your taxable interest is $1,500 or less and your ordinary dividends are $1,500 or less. See the instructions for line 8a on page 23 and line 9 on page 24.
Educator Expenses--New. If you were an educator,you may be able to deduct up to $250 of expenses you paid even if you do not itemize your deductions.See the instructions for line 23 on page 29.
Tuition and Fees Deduction--New. You may be able to deduct up to $3,000 of the qualified tuition and fees you paid in 2002 for yourself,your spouse,or your dependents. However,you cannot take this deduction if you can be claimed as a dependent on someone's tax return or if you claim an education credit on line 48 for the same student. See the instructions for line 26 on page 32.
Retirement Savings Contributions Credit--New. You may be able to take a credit of up to $1,000 for qualified retirement savings contributions.However,you cannot take this credit if your adjusted gross income (AGI)on line 36 is more than $25,000 ($37,500 if head of household, $50,000 if married filing jointly).See the instructions for line 49 on page 38.
Health Insurance Credit for Eligible Recipients--New. You may be able to take this credit only if you were an eligible trade adjustment assistance (TAA), alternative TAA, or Pension Benefit Guaranty Corporation pension recipient. By February 18, 2003, Form 8887 showing that you were an eligible recipient should be sent to you. Use Form 8885 to figure the amount, if any, of your health insurance credit.
Student Loan Interest Deduction. The 60-month limit on interest payments no longer applies and the modified AGI limit has increased. See the instructions for line 25 that begin on page 31.
IRA Deduction Expanded. You, and your spouse if filing jointly, may be able to deduct up to $3,000 ($3,500 if age 50 or older at the end of 2002). If you were covered by a retirement plan,you may be able to take an IRA deduction if your modified AGI is less than $44,000 ($64,000 if married filing jointly or qualifying widow(er)). See the instructions for line 24 that begin on page 29.
Adoption Credit. You may be able to take a credit of up to $10,000 per child for qualified adoption expenses you paid. See Form 8839 for details.
Self-Employed Health Insurance Deduction. You may be able to deduct up to 70% of your health insurance expenses. See the instructions for line 30 on page 33.
Standard Mileage Rates. The 2002 rate for business use of your vehicle is 36 1 /2 cents a mile. The 2002 rate for use of your vehicle to get medical care is 13 cents a mile.
Coverdell Education Savings Account (ESA) Distributions. If you received a distribution from a Coverdell ESA in 2002,you now report only the taxable amount of the distribution on line 21. Also,a distribution may not be taxable if it was used to pay qualified elementary and secondary school expenses. See Pub. 970.
Qualified State Tuition Program Earnings. If you received a distribution, you may now be able to exclude part or all of the earnings from income. See the instructions for line 21 on page 29.
Qualifying Child--New Definition. New rules apply to determine who is a qualifying child for purposes of the child tax credit and the earned income credit. See the instructions for line 6c, column (4), on page 22 and the instructions for line 64 that begin on page 43.
Foreign Earned Income Exclusion. You may be able to exclude up to $80,000 of foreign earned income. See Form 2555 or Form 2555-EZ for details.
Mailing Your Return. You may be mailing your return to a different address this year because the IRS has changed the filing location for several areas. If you received an envelope with your tax package, please use it. Otherwise,see Where Do You File on the back cover.
Earned Income Credit. The credit has been expanded and simplified.
- You may be able to take the credit if: --A child lived with you and you earned less than $33,178 ($34,178 if married filing jointly)or --A child did not live with you and you earned less than $11,060 ($12,060 if married filing jointly).
- Nontaxable earned income and modified AGI are no longer taken into account. Instead,taxable earned income and AGI are used to determine if you can take the credit and the amount of the credit.
- New rules apply if a child meets the conditions to be a qualifying child of more than one person.
- The alternative minimum tax no longer reduces the amount of the credit.
For more details, see the instructions for line 64 that begin on page 43.
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