Jobs & Growth Tax Relief Reconciliation Act of 2003 

Capital Gains

Under the new tax law, the maximum net capital gains tax rate falls five percentage points from 20 to 15 percent for higher income taxpayers and from 10 to 5 percent for lower-income taxpayers. A higher income taxpayer is a taxpayer  with a marginal tax rate in excess of 15 percent.  A lower income taxpayer is a taxpayer whose marginal tax rate is less than 15 percent. The new capital gain rates are effective for sales and exchanges (and payments received) on or after May 6, 2003 and through December 31, 2007.  In 2008, the five-percent rate for low-income taxpayers drops to zero percent. This is for one year only!! The 15 percent rate remains the same in 2008 for all other taxpayers. The old rates return on January 1, 2009.  More guidance will be provided with regards to capital loss carry forwards, Section 1231 gains, unrecaptured Section 1250 gains and other related events.

Because of the odd effective date for this provision and additional repercussions to related areas of the code, the IRS anticipates a large number of errors on the 2003 returns.

Dividends

Dividend income received by an individual shareholder from a domestic or qualified foreign corporation will be taxed at a maximum rate of 15 percent for higher income taxpayers (as defined above).  Lower income individuals (as defined above) will pay tax on their dividends at a rate of five percent. This special tax treatment is effective for dividends received in tax years beginning after 2002 and up through December 31, 2008.  Please note this provision does not include all dividends and the exceptions tend to be complex.  Please seek professional help in this area.

Individual Marginal Rates

Individual income tax rates above 15 percent will generally fall about two percentage points. The highest rate, now at 38.6 percent, falls to 35 percent. The new rates are effective January 1, 2003 through December 31, 2010.

Child Tax Credit

The new law immediately increases the credit from $600 to $1,000 per child.   Unfortunately, this increase is only in effect 2003, 2004, and 2010. From 2005 through 2009 the tax credit is set at $700.

You may receive this benefit early.  Advance payments of the additional credit should be mailed at the end of July and during August based on the information contained in your filed 2002 tax return.  If you received the full child tax credit in 2002 for 3 children, you should receive $1,200 in July or August.

The child tax credit continues to be phased out at certain modified adjusted gross income (AGI) levels: $110,000 for joint filers; $55,000 for married individuals filing separately; and $75,000 for single filers.

Marriage Penalty Relief

Standard deduction. The standard deduction for married couples will be double that of single taxpayers in 2003 and 2004.

15-percent tax bracket.  The 15% bracket for joint filers has been increased to twice the size of the 15% bracket for single filers for 2003 and 2004.

Small business expensing

Business taxpayers may immediately deduct up to $100,000 depreciable personal property under section 179 for tax years 2003 through 2005.  The phase-out threshold is increased to $400,000.   Off-the-shelf computer software qualifies as depreciable personal property.

Bonus Depreciation

Bonus depreciation jumps to 50 percent for property acquired after May 5, 2003 and before January 1, 2005 if it wasn’t purchased subject to a written binding sales contract in effect before May 6, 2003. To conform the luxury auto depreciation dollar limits to include enhanced bonus depreciation, the new law raised the bonus depreciation amount that may be taken with respect to automobiles from $4,600 to $7,650.  Therefore first year depreciation for a luxury auto could total  $10,710.

Corporate Estimated Tax Payments

The deadline for paying the third quarter estimated tax payment for a calendar year corporation has been extended to October 15 for tax year 2003.