After months of squabbling, Congress has passed
and President Bush has signed $350 billion worth of tax cuts.
Just before the Memorial Day weekend, the country’s third
largest tax-cut in history was passed. “Income tax brackets
are now lower then ever. Enjoy the breaks while you can because
all of the tax cuts phase out by 2011 and some well before then.
This round of cuts will provide only temporary relief,”
says Salim Omar CPA, president of TAX-SAVERS based in Cliffwood,
NJ.
The new tax law changes provide relief in four main ways, says
Omar: Lower income tax rates, child credit increases, marriage
penalty relief and tax breaks for investors.
Lower income tax rates.
The individual rate cuts included in the 2001 Bush Tax Cut legislation
are accelerated
and became retroactively effective January 1, 2003. The 10 percent
and 15 percent rates remain but the four higher brackets are cut:
27% rate goes to 25%
30% rate goes to 28%
35% goes to 33%
38.6% goes to 35%
This means that more of your income will be taxed at the lower rates,
hence slightly larger paychecks starting in July 1, 2003.
.
Child credit increases
Effective this year, the tax credit for each under-age-17 dependent
child, stepchild, foster child or grandchild is increased to $1,000.
Depending on your income, you can expect an “advance payment”
check of as much as $400 from Uncle Sam this summer. An estimated
25 million taxpayers will receive these child-tax-credit rebate
checks. If you do qualify for the full credit, be aware that unless
Congress takes action, the $1,000 credit drops to $700 in 2005 and
$500 in 2011.
Marriage penalty relief.
For many years, married people have complained about having to pay
higher taxes because they said “I do”. The new tax law
provides some relief. Effective immediately, the standard deduction
for joint filers is double the amount for singles. So for joint
filers, the standard deduction is now $9,500 (up from $7,950). In
addition, the amount of a couples income that falls in the 15 percent
bracket would be double the income range of a single filer. So for
joint filers, the 15% tax bracket now tops out at taxable income
of $56,800 (up from $47,450).
Big break for investors.
Good news for those who invest in taxable investment accounts. The
new law lowers the tax on long-term capital gains and on dividends
to 15 percent for most taxpayers, 5 percent for those in the lower
income tax brackets. The new tax cuts would apply to investment
transactions after May 6, 2003.
The earlier you start planning, the more opportunities you’ll
have to benefit from these new tax law changes.
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