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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asset sold must be held for five years has been repealed.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.
Financial Truth #2
"YOU HAVE NOT SAVED ANYTHING,
UNLESS YOU SAVED THE SAVINGS." A person who saves $5 using a coupon
to purchase an item really did not save anything, if that person spends
the savings on something else. The only way to keep your savings is
to SAVE them! If you would take that $5 and put it in the bank and
add to it all of the other savings you get everyday, they would grow
quickly. If you would then further transfer these savings to other
more profitable investments, they would grow faster than could be imagined
and with little change in your lifestyle.
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