Marriage tax penalty
relief- increases the 10% & 15%
tax bracket to twice that of the single 15% bracket. Also for taxpayers
who DO NOT itemize, the joint standard deduction has increased to
twice the single standard deduction. The deduction of $1,550
times your top tax rate will be your tax savings.
|
Tax Rate savings:
|
|
New 2003 Rate |
10% |
15% |
25% |
28% |
33% |
35% |
|
Prior 2003 Rate
|
same rate/$ bracket change |
same |
27% |
30% |
35% |
38.6% |
|
Single |
7000
(6000) |
next 21950
to 27,950 |
next
39,750
to 67,700 |
next
73,550
to 141,250 |
next
165,800
to 307,050 |
amounts over
307,050 |
|
Cumulative Savings |
$100 |
0 |
$895 |
$2,366 |
$5,682 |
Plus 3.6% of amts over $307,050 |
|
Head Of Household |
10,000
(10,000) |
next 27,470
to 37,450 |
next
59,250
to 96,700 |
next
59,900
to 156,600 |
next
150,450
to 307,050 |
amounts over
307,050 |
|
Cumulative Savings |
$ 0 |
0 |
$1,185 |
$2,383 |
$5,392 |
Plus 3.6% of amts over $307,050 |
|
Married Joint |
14,000
(12,000) |
next 43,900
to 57,900
(46700) |
next
54,950
to 112,850 |
next
59,100
to 171,950 |
next
135,100
to 307,050 |
amounts over
307,050 |
|
Cumulative Savings |
$200 |
$1,120 |
$2,219 |
$4,583 |
$8,022 |
Plus 3.6% of amts over $307,050 |
Make an appointment with
your tax advisor /financial planner to discuss:
1. Diversify your portfolio.
The new tax law (lower capital gains rate) makes it less
costly to sell appreciated holdings. Ask for a review of
your asset allocation within the various risk and tax
categories. When buying a stock or other financial
instrument, be sure to consider that the sale of that asset
before 1 year means taxes at the ordinary income rate (as high
as 35%) as opposed to taking advantage of the dividends taxed
at 15% or the capital gain also taxed at 15%. So "buy and
hold" may be the wisest options.
2.
Consider
gifting appreciated investments and dividend paying stocks to
children (over 14) in low tax brackets. They may be able to
take advantage of the 5% capital gains or 5% dividend tax
if they are in the 15% tax bracket.
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| Increased child tax
credit- A tax credit of $1000 per child under age 17 up from
$600 in 2002. A portion of this credit may be refundable for
taxpayers with low tax liabilities and the credit begins to be
phased out for taxpayers with income over $75,000 for single
taxpayers and $110,000 for married taxpayers. |
Dividend and capital
gains reductions. Tax rates on capital gains are going
down from 20% to 15% for sales on or after May 6, 2003 (and from 10%
to 5% for individuals in the 15% or less bracket). Dividends as of
1/1/2003 are now taxed at the same capital gains rates (the lower
tax rates on dividends and capital gains will revert back to 2002
rates in 2008) making them equally attractive from a tax point of
view; before the bill passed, the tax system favored
capital-gains-paying growth stocks over those that paid dividends.
Dividends might be more appealing because they provide a more
certain return than capital gains. However, it's important to note
that dividend income is treated as net capital gain, not as
long-term capital gain. So dividends cannot be offset against
capital losses to arrive at net capital gain.
Reconsider actively managed investment vehicles. Short-term trading
will produce ordinary income to be taxed at rates as high as 35%.
From a tax standpoint, "Buy and Hold" now appears to be wiser for
most individuals, who typically should be directed toward passively
managed http://www.qbalance.com products. Low costs, and income taxed at the lowest
possible rate, make these "tax-sensitive" investments the right
choice for many. |
Depreciation - The 2003 tax law has expanded the
special depreciation deduction
from 30% to 50% of new assets placed in service before Sept 11,
2004. Check with your tax advisor for which assets
qualify. Also, the 2003 tax law has increased the
section 179 depreciation election, for 2003 only, from $25,000 to
$100,000. The amount of investment qualifying for this immediate
deduction begins to phase out for small businesses with investment
in excess of $400,000 (increased from $200,000) Check with your tax
advisor for other limitations.
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