TAXES AND ACCOUNTING

Summary of the $350 Billion
Tax-Cut Package

By Bob Kim, CPA

The Jobs and Growth Tax Relief Reconciliation Act of 2003 is the third largest tax cut package in U.S. history. The tax package, pushed through Congress by President George Bush will benefit families with children and investors the most. Some highlights of the new law:

• Marginal tax rates have been reduced across the board, effective retroactively to January 1, 2003. The reductions are as follows:
  27% rate goes to 25%
  30% rate goes to 28%
  35% rate goes to 33%
  38.6% rate goes to 35%

The lowest rates, the 10% and 15% brackets, remain unchanged, but it increases the amount of income subject to the 10 percent bracket by $1,000 for singles and $2,000 for married couples.

• Small Business Benefits

Code Section 179, which allowed small businesses to expense, rather then depreciate, equipment placed into service, has been altered dramatically. Under the new law, businesses can now expense $100,000 worth of equipment placed into service during the year, up from $25,000 last year. Equipment qualifying for this is defined as tangible personal property that is purchased for the use in a trade or business.

• Rate Reductions for Dividends

A major component of Bush’s original plan was the elimination of income tax on shareholder dividends. The new law doesn’t quite go that far, but it does lower the top tax rate on corporate dividends to 15 percent for most taxpayers. This new 15 percent rate is effective for dividends received as of January 1, 2003. Dividends qualifying are those received by an individual shareholder from a domestic or qualifying foreign corporation.

• Rate Reductions for Capital Gains

For sales and exchanges on or after May 6, 2003, long term capital gain rates have dropped from 20 percent to 15 percent. Deductions of capital losses against ordinary income stays at $3,000 per year for individuals.

• Retroactive Increase of the Child Tax Credit

The law has increased the child tax credit from its current level of $600 to $1,000 per child under 17. Starting in July, an advance payment of the 2003 credit, up to $400 per child, will be received by taxpayers who filed their 2002 tax returns, similar to how the government sent checks out in 2001 to give taxpayers an immediate benefit from the retroactive tax changes passed that year. The child credit phases out, however, for single filers earning more than $75,000 a year and married couples more than $110,000.
More detailed information will be published by the Internal Revenue Service in the coming weeks. Be sure to contact your tax advisor with any questions.

Bob Kim is a manager for Gatto McFerson, CPAs. You can contact him by email at bob@gattomcferson.com.

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