More than 400 federal tax changes take effect this month, touching on everything from retirement savings plans to small-business deductions for day care.
Most of the changes are technical in nature, part of new rules stemming from the Economic Growth and Tax Relief Reconciliation Act of 2001, signed by President Bush last summer.
However, some significant changes in the tax code provide increases in the maximum annual contributions for Individual Retirement Accounts, or IRAs.
This year, individuals will be able to contribute up to $3,000 to IRAs, up from the previous limit of $2,000. Employees 50 years old and older can add $500 on top of that as a catch-up for previous years when they may not have contributed the maximum allowed.
And 401(k) contributions, currently limited at $11,000 per year, will rise $1,000 every year from 2003 until 2006.
"Congress is clearly trying to increase some incentives for people to put more money away into 401(k) plans . . . and their own retirement plans," said Neil Sabin, a lawyer with Nielsen & Senior, a Salt Lake-based law firm.
In addition, contributors to IRAs or 401(k)s will be able to take advantage of a new tax credit. It allows up to a 50 percent tax credit of whatever an individual contributes to an IRA or 401(k) for the first $2,000 contribution.
Small businesses also will benefit from an increase in tax write-offs of capital equipment purchases, according to Steve Moore, district manager of H&R Block's north Salt Lake office.
Up to $24,000 can be written off this year on equipment rather than depreciating the value over five years, Moore said. That's up from last year's maximum write-off of $20,000.
And small and mid-sized businesses can claim a 25 percent write-off for costs associated with child care and another 10 percent for facility and operation costs.