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Home / Services / Calculators / Newsletter / Archives Jobs and Growth Tax Relief Act of 2003 Congress has just passed the $350 billion tax relief plan. The House voted 231-200 in favor of it and the Senate voted 51-50 in favor, with Vice President Dick Cheney casting the deciding vote. This act will bring relief to most taxpayers and should bring about improved economic growth. The $600 Child Tax Credit is increased to $1,000 effective now. For every child under the age of 17 a taxpayer can claim as a dependant, the taxpayer's income tax is reduced by $1,000. To further stimulate the economy, the $400 additional credit for 2003 will be mailed to taxpayers this summer, rather than having to wait until next April. Married taxpayers will see a reduction of the marriage penalty. Those married taxpayers filing separate returns will find that the standard deduction and the income tax brackets in the 10% and 15% tables will now be the same as a single taxpayer. Prior to this change, married taxpayers with three children could only earn $69,550 and still be in the 15% tax bracket. Now these same taxpayers can earn $80,300. This will save them $1,290 in taxes. Individual income tax rates have been lowered. The 27% rate is now 25%. The 30% rate is now 28%. The 35% rate is now 33%. and the 38.6% rate is now 35%. These rate reductions are effective January 1, 2003. New withholding tables will be issued by the IRS and go into effect July 1st. Most employees will see an increase in their paychecks due to these changes. All of these changes would result in the Alternate Minimum Tax being imposed on the average taxpayer. To prevent this, the exemption from Alternate minimum tax has been increased from $49,000 for joint returns to $58,000 and from $37,750 for single taxpayers to $40,250. This should reduce the problem for many taxpayers. However, much work needs to be done to eliminate this tax altogether. Maybe it will happen after the next election. Capital gains rates are being reduced from 20% to 15% for most taxpayers. For the taxpayers in the lowest two brackets they are being reduced from 10% to 5%. The requirement that the asset sold must be held for five years has been repealed. Now the asset must be held for a year or longer to obtain these low rates. These changes are for capital gains after May 5, 2003. Capital gains prior to May 6, 2003 are still under the old rules. The 5% rate is reduced to 0% for years after 2007. "Qualified dividends" received by a taxpayer will be taxed as a "net capital gain". This means, taxpayers calculate their capital gains or losses. If it results in a gain, you add the dividends to it and calculate the tax using the capital gains rules. If it results in a loss, you take the capital loss (limited to $3,000 per year) and then calculate the tax on the dividends alone using the capital gain rules. Effectively, taxpayers will pay a 15% tax on dividends, unless they are in the two lowest tax brackets (10% and 15%), then they will pay 5%. "Qualified dividends" are any dividends paid after 2002 by a domestic corporation or a foreign corporation that is readily traded on a US stock exchange and is subject to a tax treaty with the United States. Businesses may elect to expense the cost of depreciable personal property up to $100,000 in the year of the purchase for assets purchased after 2002 and before 2006. The maximum amount of assets that may be purchased in any year cannot exceed $400,000 or the $100,000 deduction will be reduced or eliminated. This restriction is to limit this deductions to small business and the not the Fortune 500. This property must be used in an active trade or business. It does not apply to rental property or investment property. All businesses (not just small businesses) may also elect a new 50% bonus depreciation for new property acquired and placed in service after May 5, 2003 and before January 1, 2005. This property also must be used in an active trade or business. Businesses that acquired property before May 6, 2003 may still use the 30% bonus depreciation. If an election is not made, the business will be required to take the bonus depreciation. OHIO has already required businesses to adjust their OHIO income by taking 1/6 of the 30% bonus depreciation per year. It is expected that OHIO will do the same for the 50% bonus depreciation. These changes provide many planning opportunities. Be sure to contact us to plan how to maximize these benefits and minimize your taxes. (June, 2003 Newsletter)
James E. Newland, CPA 939 Center Road Eastlake, Ohio 44095 440-951-9799 |
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