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2003 TAX LAW CHANGES:
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- CHILD TAX CREDIT: The child tax credit for qualifying children under age 17 by 12/31/2003, has been increased to $1000. This change is no permanent however, in the tax year 2005, the credit reverts back to the old law of $700 per qualifying child. Taxpayers who received the advanced child tax credit may not take the full $1000 on the 2003 tax return since they received a $400 advance. Taxpayers who had received a LIMITED child tax credit or none at all, will be eligible to receive up to the full $1000 per qualifying child on the 2003 tax return.
- MARRIAGE PENALTY RELIEF: To reduce the unfairness of the tax code, congress has begun to equalize many of the inequities such as the standard deduction and tax rates for married taxpayers. Now, thanks to the latest tax law, the tax rates have been adjusted on married taxpayers in the 15% tax bracket. The bracket levels for those at 10% have also been expanded to twice the income level of single taxpayers, thereby lowering their taxes.
- TAX RATE REDUCTION: All tax rates have been reduced to the following brackets: 10%, 15%, 25%, 28%, 33% and 35%.
- INCREASED BONUS DEPRECIATION: The prior years’ 30% bonus depreciation has been increased to 50% for qualifying property used in business. The old 30% bonus depreciation is still available for those taxpayers who find it more advantageous for their tax situation. To qualify for the new 50% bonus depreciation, the property must be acquired after May 5, 2003 and before January 1, 2005, be new and an election is made to use the 50% bonus depreciation.
- INCREASED DEPRECIATION ON LUXURY AUTO: Because of the increased bonus depreciation, luxury auto depreciation is increased accordingly.
- INCREASED EXPENSING (CODE 179) ELECTION: The expensing limit is increased to $100,000 for qualifying property for tax years 2003 to 2005. This will include “off the shelf” computer software.
- CAPITAL GAINS TAX REDUCTION: The 10% capital gains rate is reduced to 5% and will be reduced to 0% in 2008. The 20% rate is reduced to 15%. This change is for taxable years ending on or after May 6, 2003. Gains realized prior to May 6th will generally be taxed at the then-existing rates, and only new gains will be taxed at the lower rates. This is important to those taxpayers who have sold property on the installment method at the earlier date since they will be taxed at the old rates.
- DIVIDEND TAX REDUCTION: Dividends will be combined with your net capital gains and will be taxed at the new capital gains rate of 5% or 15% depending upon your income.
- STANDARD MILEAGE RATE: For business use of your vehicle, the new standard mileage rate is 36 cents per mile
- HEALTH INSURANCE FOR SELF EMPLOYED: The entire amount of health insurance paid is an adjustment to income by self employed individuals.
OTHER PAST TAX LAW CHANGES:
- STUDENT LOAN INTEREST: Changed to include all interest paid for higher education no matter when the taxpayer was a student.
- IRA/PENSION CONTRIBUTIONS: General increases on all pension plan and IRA contributions with special “catch up” provisions for taxpayers 50 years of age or older.
- ADOPTION CREDIT: Increases in the amounts allowable for adoptions with additional credits for “special needs” adoptions.
- EARNED INCOME CREDIT: Qualifying child requirements revise the relationship tests and earned income for EIC is based upon taxable income only.
- FOREIGN INCOME EXCLUSION: Exclusion for income earned abroad is increased to $80,000 through 2007.
- GIFT TAX EXCLUSION: Annual gift tax exclusion is $11,000 per donee and changes with the cost of living in $1000 multiples.
- NET OPERATING LOSSES: NOL’S are now carried back 5 years and forward 20 years.
- EDUCATOR EXPENSES: A deduction of up to the first $250 in classroom expenses paid by a qualified educator is an adjustment to income.
- TUITION AND FEES DEDUCTION: Up to $3000 of qualified tuition and fees are an adjustment to income, subject to income limitations.
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