2002 Tax Planning Guide & Calendar
Your Comprehensive Clip-and-Save Planner For the Coming Year
By John McGill, MBA, CPA, JD

In June, President George W. Bush signed into law the Economic Growth and Tax Relief Reconciliation Act of 2001, the largest tax cut bill in over 20 years, and certainly the most controversial. In order to fit in the 10-year tax cut under the strict $1.35-trillion budget ceiling, Congress employed a dizzying array of delayed-effective dates, phase-outs of certain tax-cut provisions, and the scheduled disappearance of the entire package of tax cuts at midnight on Dec. 31, 2010, in Cinderella-like fashion.

While there are few tax changes that will directly affect this year’s tax calendar, there are nevertheless tremendous tax-savings opportunities that you can take advantage of in the coming year. While Congress trimmed doctors’ tax rates slightly, most potential tax-saving opportunities lie in increased retirement and education deductions.

Under the new law, the maximum tax-deductible retirement plan contribution for doctors has been increased from $35,000 in 2001 to $40,000 in 2002. Many doctors now operate both money purchase pension plans and profit-sharing plans in order to achieve the maximum annual tax-deductible contribution. Under the new law, only a single plan will be required, so that many doctors can achieve significant cost savings through merging their two current plans.

Doctors operating 401(k) profit-sharing plans will also see increased salary deferral options, and tremendous benefits from employing spouses in the practice. Moreover, the new law allows additional “catch-up” contributions for doctors age 50 or older.

Even greater tax-deductible contributions opportunities are available for doctors using a defined benefit pension plan, generally applicable to doctors age 45 or older who employ a younger staff. In some cases, contributions for these doctors have increased by as much as 50% over those available under prior law.

IRA contributions for a spouse will also increase effective Jan. 1 to $3,000 for 2002-2004, $4,000 for 2005-2007, and $5,000 thereafter. Moreover, the new law also allow additional IRA “catch-up” contributions for doctors age 50 or older.

Doctors’ college savings plans also received a significant boost under the new tax law. Contributions to education IRAs were expanded from $500 a year currently to $2,000 annually, beginning in 2002. While contributions remain non-deductible, the earnings grow on a tax-deferred basis and can be paid out tax-free to meet college and graduate/ professional school expenses as well as qualified elementary and secondary school costs.

The new law also substantially improved the tax benefits available from Section 529 college savings plans. While contributions remain non-deductible, the earnings grow tax-deferred and can be paid out tax-free for college and graduate school, as well as qualified elementary and secondary school expenses.

Finally, student loan interest deductibility was increased and a new college education expense deduction will be available to most doctors beginning next year.

As with any financial issue, the key to managing taxes successfully lies with planning ahead. This 2002 Tax Planning Guide & Calendar will help you get organized and stay organized. Clipping and referring to this comprehensive 2002 calendar will help you file tax deposits, payroll taxes, and estimated payments in a timely manner.

Jan. 15, 2002
• The final quarterly installment of 2001 estimated individual income tax (including self-employment tax) is due. You have a choice: either pay now or skip this payment, file your Form 1040, and pay the balance by Jan. 31. Make a note of the payment due because you will receive no bills from the IRS to jog your memory. If you paid installments last year, use the preprinted installment vouchers showing your name, address, and Social Security number that are part of the Form 1040-ES worksheet that should have come with your tax return forms. You can obtain these vouchers from your local IRS office.

• Complete Form 8109 (Federal Tax Deposit-Withheld Income and FICA Taxes) and deposit the taxes if you are a monthly depositor under the IRS tax-deposit rules. Under these rules, if the practice’s total withheld income and FICA taxes for the 12 months ending June 30, 2001, were $50,000 or less, the practice must deposit taxes withheld during a calendar month by the 15th day of the following month. If the total exceeded $50,000, the practice must make semi-weekly deposits. Under the semi-weekly deposit rules, if a payroll is paid on Wednesday, Thursday, or Friday, the payroll deposit is due by the following Wednesday. If payroll is paid on Saturday, Sunday, Monday, or Tuesday, the payroll deposit is due by the following Friday.

Jan. 31, 2002
• Today is the deadline for furnishing 2001 Form 1099 information returns (Copy B) to recipients of $10 or more in dividends/interest, or $600 or more in rents, legal fees, interest, royalties, commissions, fees, medical savings account distributions, prizes, and other compensation to non-employees. Your IRS Center must receive Copy A of Form 1099, with the accompanying 1096 Transmittal Forms, by Feb. 28.

• Each employee must be furnished with a W-2 form showing wages paid and taxes withheld in 2001 – that’s Copy B for the employee’s Form 1040 and Copy C for his or her records, as well as copies of the forms for any state or city returns. By Feb. 28, you’re expected to file with the Social Security Administration the original copy of all W-2 Forms (Copy A) that you gave to your employees, along with a W-3 Form (Transmittal of Income and Tax Statements).

Reminder: If you paid more than $1,000 during the 2001 calendar year to a housekeeper, babysitter, or other household employee, you are liable for Social Security taxes and required to file Form 942 (Employer’s Quarterly Tax Return for Household Employees). Alternatively, the Social Security taxes (FICA) and Federal Unemployment taxes (FUTA) due on any domestic helper’s wages can be computed and paid on the doctor’s individual tax return (Form 1040), rather than having to file Form 942 each quarter and Form 940 by Jan. 31.

• Using Form 940, doctors are required to file an annual Federal Unemployment tax return for practice salaries paid in 2001 by this date. If you made timely deposits in full payment of the tax, this deadline is extended to Feb. 11. Are you liable for FUTA taxes? You are if your wage payments topped $1,500 in any calendar quarter last year, if you employed one or more persons on at least one day of each 20 or more weeks during the last year, or if you pay a household worker $1,000 or more in a calendar quarter.

• Here’s a memory jogger if you chose not to pay the last installment of your estimated 2001 federal income tax on Jan. 15. File the balance of your actual 2001 income tax and the balance of your 2001 self-employment tax.

• File Form 941 to pay the balance of last quarter 2001 contributions to Social Security, plus the balance of Social Security and income taxes withheld from Oct. 1 to Dec. 31. This filing deadline is extended to Feb. 11 if you made deposits on time in full payment of your Social Security tax and withholding liabilities during the preceding quarter. While it may not be an IRS requirement, it’s always a good idea to prepare and keep a reconciliation of the wages, Social Security taxes, and income taxes withheld as shown on the W-2s with the quarterly 941 Forms and your books. Retain Copy D of all W-2s.

Feb. 15, 2002
• Complete Form 8109 and deposit taxes due for January (see Jan. 15 note).

• Ask for a new W-4 Form from each employee who claimed total exemption from withholding during the prior year. If no form is received from the employee, begin withholding income tax from the employee’s paycheck, effective Feb. 15.

Feb. 28, 2002
• File Copy A of Form 1099, with the accompanying 1096 transmittal form, with your IRS Service Center. File Copy A of all W-2 forms given to employees, along with a W-3 transmittal form, with the Social Security Administration.

March 15, 2002
• Did you practice as a corporation in 2001? A corporation’s federal income-tax return Form 1120 or 1120S is due 21/2 months after the end of its fiscal year. March 15 is the due date if your corporation’s year ends Dec. 31; otherwise, simply transfer this entry to the proper date. You may request an extension to file until Sept. 16, but all corporate income taxes must be paid with the request for extension.

• Complete Form 8109 and deposit taxes due for February (see Jan. 15 note).

• File Form 2553 with the IRS if your corporation wants to be taxed as an S corporation effective Jan. 1, 2002. If Form 2553 is filed after this date, S treatment will become effective Jan. 1, 2003.

April 15, 2002
• File your federal individual income tax return, Form 1040, if you haven’t already done so or received an extension to Aug. 15. Pay any balance you owe on your income tax for 2001. Complete Schedule SE and pay any remaining balance of your 2001 self-employment tax, if you are unincorporated.

• If in a partnership, report your share of 2001 partnership earnings from Schedule K-1 on your Form 1040. Also, make sure the partnership return – Form 1065 – is filed by this date.

• Today is the deadline for filing your first quarterly estimated payment to cover your 2002 federal income tax and your self-employment tax liabilities, if unincorporated. Using Form 1040-ES, pay one-fourth of your estimated federal income tax and one-fourth of your estimated 2002 self-employment tax.

• Calendar-year corporations pay one-fourth of estimated tax. Fiscal-year corporation payments are due in the fourth, sixth, ninth and twelfth months of the corporation year, using worksheet Form 1120-W.

• Complete Form 8109 and deposit taxes due for March (see Jan. 15 note).

• File Form 1041, trust or estate income tax return, if your trust or estate year ends Dec. 31. Otherwise, your return is due 31/2 months following the close of your year.

• Make IRA and SEP-IRA contributions for 2001 by this date.

April 30, 2002
• File Form 941 to pay the balance of your first-quarter 2002 contribution to Social Security, plus the balance of Social Security and income taxes withheld from employees’ salaries during the same period. This filing deadline is extended to May 10 if you have made deposits on time and also have made full payment of your Social Security and federal withholding liabilities during the preceding quarter.

May 15, 2002
• Complete Form 8109 and deposit taxes due for April (see Jan. 15 note).

• If you practice as an unincorporated partnership or S corporation and selected a tax year ending at a time other than Dec. 31, file Form 8752 and make the resulting required payment.

June 15, 2002
• For unincorporated doctors, the second installment of your 2002 federal tax is due. Using Form 1040-ES, remit payment of one-fourth of your estimated income tax and one-fourth of your 2002 self-employment tax. If you are unincorporated and your taxable income so far this year has varied by 10% or more from your original estimate, you should adjust your estimated tax payment accordingly. If incorporated, your federal income tax payments should be adjusted through your withholdings.

• Calendar-year corporations are to pay one-fourth of their estimated tax by this date. Fiscal-year corporation payments are due in the fourth, sixth, ninth and twelfth months of your corporation’s year.

• Complete Form 8109 and deposit taxes due for May (see Jan. 15 note).

July 15, 2002
• Complete Form 8109 and deposit taxes due for June (see Jan. 15 note).

July 31, 2002
• File Form 941 to pay the balance of your second-quarter 2002 contribution to Social Security, plus the balance of Social Security and income taxes withheld from employees’ salaries during the same period. This filing deadline is extended to Aug. 12 if you made timely deposits in full payment of your Social Security and withholding liabilities during the preceding quarter.

• File appropriate Form 5550 with the IRS if your practice sponsored a retirement plan or flexible spending account (“cafeteria”) plan in 2001 that operated on a calendar year. If your plan used a fiscal year, the return is due on the last day of the seventh month after the plan year ends.

Aug. 15, 2002
• Complete Form 8109 and deposit taxes due for July (see Jan. 15 note).

• File your federal individual income tax return, Form 1040, if you requested an automatic four-month extension by April 15. Pay the balance owed on your 2001 income and self-employment taxes.

Sept. 16, 2002
• If unincorporated, the third installment on 2002 federal tax is due – one-fourth of estimated income tax and one-fourth of 2002 self-employment tax. Adjust your payment if taxable income varies 10% or more from your last estimate.

• Calendar-year corporations are to pay one-fourth of their estimated tax. Fiscal-year corporation payments are due in the fourth, sixth, ninth and twelfth months of your corporation’s year.

• Complete Form 8109 and deposit taxes due for August (see Jan. 15 note).

• Now would be a good time to arrange a meeting with your tax advisor to plan year-end strategy.

• File a 2001 Form 1120 (regular) or Form 1120S (S corporation) return if you practiced in a corporation during 2001 and received an automatic six-month extension to file your federal corporate income tax return on or before March 15 and paid any tax due.

Oct. 15, 2002
• Complete Form 8109 and deposit taxes due for September (see Jan. 15 note).

Oct. 31, 2002
• If you are practicing as a corporation, make sure your total individual income tax withholding for the year, plus any quarterly payments you made, will add up to at least 100% of the taxes you expect to owe for 2002. If your totals fall short, be on the safe side by increasing your withholding for the remainder of the year.

• File Form 941 to pay the balance of your third-quarter 2002 Social Security, plus the balance of Social Security and income taxes withheld from employees’ salaries during the same period. This deadline is extended to Nov. 11 if you made deposits on time in the full amount during the preceding quarter.

• Ask for a new W-4 Form for each employee whose withholding allowances will change for the next calendar year.

Nov. 16, 2002
• Complete Form 8109 and deposit taxes due for October (see Jan.15 note).

Dec. 16, 2002
• Calendar-year corporations pay one-fourth of estimated tax. Fiscal-year corporation estimated payments are due in the fourth, sixth, ninth and twelfth months of the corporation year.

• Complete Form 8109 and deposit taxes due for November (see Jan. 15 note).

Editor’s Note: Mr. McGill is a tax attorney with McGill and Hassan, P.A., a legal firm in Charlotte, N.C., that specializes in financial issues. He writes a monthly “Tax Q&A” article for Chiropractic Economics. Mr. McGill formerly worked with the Office of Chief Counsel, the legal branch of the Internal Revenue Service in Washington, D.C.