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| Newsletter — New Laws in 2003 |
For Married Taxpayers filing jointly and surviving spouses — The 15% rate bracket is expanded to twice that of single taxpayers. The Standard Deduction is increased to $9,500 (twice that of single taxpayers)
The 10% rate bracket for the first $7,000 of taxable income for Single taxpayers and Married Filing Jointly and $14,000 for married taxpayers.
Alternative Maximum Tax Exemption increased to $40,250 for Single and Head of Household Taxpayers and $58,000 for Married Taxpayers filing jointly and surviving spouses and $29,000 for Married Taxpayers filing separately. The increase in the AMT Exemption is set to expire in 2005.
Capital Gains on Most Assets sold after 5/6/2003 and held more than 1 year have a maximum tax rate of 15%.
(Does not include Unrecaptured Section 1250 Capital Gain.)
Maximum Tax Rate on Dividends from C Corporation is 15%
Check for Full Rate Information
You need to pay the lesser of 100% of your 2002 liability of 90% of 2003 tax by January 15, 2004 to avoid the underpayment penalty. For individuals whose income is over $150,000, the safe-harbor is 110% of your 2002 liability.
2004 Limit — $13,000 contribution for Qualified Plans ($8,000 for Simple Plans)
Workers age 50 and older may contribute $2,000 more ($1,000 more for Simple Plans)
The Maximum Wage subject to Social Security tax is going up to $87,900 in 2004.
The SEP IRA is now increased to 25% of compensation or $40,000 whichever is less. There is a Saver’s Credit which was new in 2002 for taxpayers with a Joint Income of under $50,000, HOH income of under $37,500 or Single Income of under $25,000 who make contributions to an IRA, 401(k), SEP, or a Governmental 457(b). If this is the case let us know the amount of your contribution and you will be eligible for a credit of between 10% and 50% of this contribution (this is in addition to the taxes you have already saved by making the contribution to your retirement plan.)
Maximum Rate Increases to 35%. Limit on Qualifying Expenses increases to $3,000 for one qualifying person and $6,000 for two or more qualifying people.
Maximum increases to $1,000 per child. Advanced payment of increased portion of credit paid in 2003. This credit reduces the advanced payment on your 2003 tax return.
Check for the Amount of your Credit
For School Teachers — There is new $250 above the line deduction for qualified classroom expenses.
For Students — Those who do not qualify for the Hope Credit ($1,500 deduction for Full-time Freshmen and Sophomores) or the Lifetime Learning Credit (20% credit of qualified expenses up to $10,000 Juniors, Seniors, Grad Students, and Part-Timers), there is a Qualified Higher Education Deduction of up to $3,000 for those with AGI under $130,000 (Joint Filers) or $65,000 (Single Filers).
529 Plans are Contributions made for a beneficiary's education. The advantages are: All income that is earned in the account is tax deferred. The earnings may be state tax free (for Colorado or New York, others) if used for education. The income will be taxed at the beneficiary’s rate when withdrawn. The 529 assets are removed from the donor’s estate and are creditor proof. The donations are partially deductible on many state returns (including Colorado, New York and others). Distributions from 529 education plans can be used the same years as the Hope and Lifetime Learning Credit. If the donor is not the parent, the withdrawal does not count against the student for financial aid. If the child receives a scholarship, he/she is responsible for the tax and there is no penalty on the withdrawal. If the child does not go to college, the beneficiary can be changed and the account can be rolled over to another family member. (If that child remains the beneficiary and takes a withdrawal from the 529 account, then he/she pays the tax on the withdrawal plus a 10% penalty.) Please make an appointment with us during the non-tax season if you think that a 529 plan may be for you.
Prior to the Cox and Campbell cases, large repairs on rental properties (such as roof repairs and furnace replacements needed to be capitalized. Now thanks to these cases, large repairs can be written off if they do not materially increase the value of the property but are made simply to make it habitable.
If you have some appreciated stock and would like to make a Charitable donation to a non-profit organization, it is tax-wise to donate the appreciated stock. You get the charitable deduction for the full value of the stock and never have to pay tax on the capital gains. The charity gets a larger contribution than if you sold the stock, paid the tax and donated the net proceeds.
Business Owners — In addition to the Section 179 election to expense equipment (up to $100,000), the IRS retroactively instituted an additional 50 percent first year Bonus depreciation for new assets acquired after May 5, 2003 and Before December 31, 2004. Also, vehicles used with greater than 50% business usage that have a GVW of greater than 6000 lbs, such as a heavy pickup or heavy SUV are eligible for the Section 179 election plus the 50% bonus depreciation.
Business Owners — In January, 2003, the home office deduction was made much more beneficial. In prior years, if you took the home office deduction and eventually sold your home, you would be subject to depreciation recapture and capital gains on the portion of the home that was your home office. The New Law states that only the depreciation must be recaptured upon the sale of the home. The Home Office Deduction rules state that if you have a room that is used exclusively for business the home office is deductible. The beauty of deducting a home office is that the portion of your home that is your office not only reduces your income tax but also your Self-Employment Tax. It also makes those ridiculously high natural gas bills partially deductible. The home office is figured as follows:
Office Space in the Home Divided By Total Living Space in the Home
This fraction is then multiplied by your Mortgage, Taxes, Utilities, Maintenance and Upkeep, Repairs, Depreciation of the Home to arrive at the Home Office Deduction.
If you commute from your home office (which is your principal place of business) to various locations during the day, your daily transportation expenses incurred in going between the residence and other work locations in your trade or business are deductible. You may also deduct daily transportation expenses incurred in going between your residence and a temporary work location outside your metropolitan area where you normally live and work. This temporary assignment must be expected to last and actually last less than one year.
Your health insurance premium is 100% deductible in 2003.
Your child’s wage (under 18) of up to $4,400 paid by your business is not subject to Social Security taxes or Income Taxes. This only applies to wages paid out of your Self-Employment (Schedule C Business only — not your Corporation).
