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The
Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA)
was signed into law on May 28, 2003. The law provides approximately
$330 billion of tax cuts over the next ten years, plus $20 billion
of aid to states. As you do your tax planning, here are the major
provisions of which you'll want to be aware.
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Retroactive
to January 1, 2003, rates in the top four brackets decrease
by 2% or more. This is an acceleration of changes originally
scheduled by the Tax Act of 2001 to take place in 2004
and 2006.
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Old
Rates
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New
Rates
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38.6%
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35%
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35%
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33%
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30%
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28%
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27%
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25%
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15%
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No
change
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10%
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No
change
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Rates
in the 10% and 15% brackets do not change. However, the upper
end of the 10% bracket increases from $6,000 to $7,000 for
single filers and from $12,000 to $14,000 for joint filers.
This change applies only for 2003 and 2004. The lower thresholds
go back into effect in 2005.
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The
upper end of the 15% bracket increases for married taxpayers
filing joint returns as part of marriage penalty relief (see
below). |
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Employees
can expect to see larger paychecks in July based on the new
IRS withholding tables that reflect the tax rate and tax bracket
changes. Self-employed taxpayers may wish to adjust their estimated
tax payments to reflect the new lower rates for 2003.
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To
provide some relief from the alternative minimum tax, which
has begun affecting an increasing number of middle-income taxpayers,
the exemption amount for single taxpayers increases from $35,750
to $40,250. The exemption for married couples increases from
$49,000 to $58,000. This increase is effective only for 2003
and 2004. |
MARRIAGE PENALTY
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The
new law provides some relief from the marriage penalty. The
"marriage penalty" refers to the fact that some married
couples pay higher taxes than the combined taxes they paid as
singles on the same income. |
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To
ease the problem, the upper end of the 15% tax bracket increases
from $47,450 to $56,800 for married joint filers. This is exactly
twice the amount of the 15% bracket for single filers, thus
removing part of the marriage penalty |
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In
addition, the standard deduction for married couples increases
from $7,950 to $9,500, which is twice the $4,750 standard deduction
for single filers. |
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This
relief applies only in 2003 and 2004. In 2005, the less extensive
marriage penalty relief provided in the Tax Relief Act of
2001 takes effect. The 2001 law gradually increases the
15% tax bracket and the standard deduction for married couples
until 2009 when they are once again twice those of singles. |
CHILD CREDIT
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The
new law immediately increases the child tax credit from $600
to $1,000 per child under age 17. Under the old law, the credit
was slowly ramping up to reach the $1,000 level in 2010. |
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This
higher credit applies only for two years. In 2005 it will drop
back to $700, increasing to $800 in 2009 and to $1,000 in 2010.
Again, Congress might act to make the higher level permanent
before then. |
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Congress
has instructed the IRS to pay the 2003 increase in advance by
issuing checks of up to $400 per child. Eligible taxpayers should
expect to receive these rebate checks towards the end of summer. |
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Not
all taxpayers will receive checks, however. The IRS will estimate
the amounts payable based on data from last year's returns.
If you have a child born this year, for example, you should
not expect a check for that child. Instead you will claim the
credit on your 2003 tax return. |
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Higher-income
taxpayers may not qualify for the full credit. It starts to
phase out when adjusted gross income reaches $110,000 for joint
filers ($75,000 for singles or heads of household). |
DIVIDENDS AND CAPITAL GAINS
BUSINESS
INVESTMENT
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The
new law contains two provisions intended to boost the economy
by encouraging business spending.
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In
2003 through 2005, small businesses can take an immediate
write-off for up to $100,000 of equipment purchases each year.
The previous limit on this expensing option was $25,000. This
benefit begins to phase out when total purchases in any year
exceed $400,000; the prior phase-out threshold had been $200,000.
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The
new law also increases and extends the bonus depreciation
that was introduced in 2002 tax legislation. Businesses can
now claim a first-year bonus depreciation of 50% of the cost
of most new equipment purchased after May 5, 2003, and before
January 1, 2005. The previous law allowed 30% bonus depreciation,
which can still be taken for new business equipment purchased
between September 11, 2001, and May 6, 2003.
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Note
that bonus depreciation applies only to new property while
expensing may be taken on new or used property. Also, the
two benefits can be combined; the expensing option can be
taken for a purchase, and the 50% bonus depreciation can be
used on the remaining basis if the property qualifies.
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This
summary gives you the key elements of the recent tax changes. The new
law is far-reaching and will affect the majority of taxpayers in some
way. It is also complex, with various effective dates, expiration dates,
limitations, and exceptions.
Though
President Bush had proposed significant changes to retirement and college
savings plans, this new legislation does not include any provisions
changing these plans.
Please
call for details on any provision in the tax law that concerns you or
to make an appointment for a more specific review of your tax situation.
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