TAX PLANNING STRATEGIES
by Curtis Finch, C.P.A.

What the tax cut means to you!

It appears that the wealthy and families with children are going to be the beneficiaries of the 2003 tax cut.

The $350 billion dollar package of tax cuts and aid to states is less than half the $726 billion that Bush proposed in January. Nevertheless, it was signed into law last week and is the third largest tax-cut plan in U.S. history. It landed on Bush's desk almost two years after he signed the largest set of tax cuts ever -- a 10-year, $1.35 trillion package.

It is estimated that a married couple earning $63,000 a year with two children would get a break of $1,100 this year. A childless couple with the same income would save $300.

The measure is filled with expiration dates that make many of the tax cuts temporary. Democrats said if the breaks were extended for the full 10 years, the package would cost the government $1.06 trillion.

Key provisions:

• A speed-up of income tax rate cuts enacted in 2001. Rates would drop from 27%, 30%, 35% and 38.6% to 25%, 28%, 33% and 35%. The cuts are retroactive to Jan. 1, 2003. Beginning in July, wage earners will see less federal taxes taken out of their paychecks. 
• An increase in the child tax credit from $600 to $1,000. The 25 million families that claimed the credit for last year will get $400 checks for each child younger than 17. The checks, an advance for this tax year, will be sent out this summer. After 2004, the credit is scheduled to drop back to $600 from $1,000.
• A jump in the standard deduction and expansion of the 15% tax rate for married couples this year and next. Both would return to current levels in 2005. 
• A cut in income tax rates on stock dividends to a maximum 15%, down from as much as 38.6%. The rates would return to current levels after 2008. 
•  A reduction in the maximum tax rate on capital gains earned after May 5, from 20% to 15%. The rate would revert to 20% after 2008. 
•  A provision that allows small business owners to deduct up to $100,000 for luxury sport-utility vehicles used in business.  The law also applies to eligible business equipment. 

All of this in conjunction with new retirement plan strategies passed in 2001 can make for a significant reduction in federal and state income taxes. 

You may call our office to set up a complimentary review of your retirement plan programs for your business.

CLIENT TIPS.................

Are You Withholding Enough to Cover Your Tax Liability?

With the year moving along, you may want to take a few minutes to make sure what is being withheld from your paycheck matches (or at least comes close) your actual 2003 federal tax liability.  (See estimated tax deadlines below)

If you're having too much tax withheld, you are allowing the government interest free use of your money. If you're not having enough withheld, you will owe tax at the end of the year, and you may have to pay a penalty. Generally, a penalty will apply if your withholding and estimated tax payments total less than 90 percent of your current year's tax liability or less than 100 percent of the previous year's tax (110% if your adjusted gross income exceeds $150,000 and your filing status is married filing jointly).

But if you act now, you'll still have time to get on track with your withholding and avoid any unforeseen tax surprises next year. You should pay particular attention to your withholding if you received a big refund check this year or if you had to make a significant tax payment with last year's tax return.

There is a good chance you're not having enough withheld if you have more than one job, your spouse works, you have income not subject to withholding, such as rent, dividends, interest or capital gains, or you owe other taxes like self-employment or household employment taxes.
You can adjust the amount withheld from your paycheck by giving your employer a new Form W-4, Employee's Withholding Allowance Certificate. Or, you may need to pay estimated taxes using Form 1040-ES, Estimated Tax for Individuals.

YOUR SUMMER TAX CALENDAR

June 15th Second quarter 2003 estimated taxes due

June 15th May monthly payroll tax deposits for IRS & State

July 15th June monthly payroll tax deposits for IRS & State

July 31st  Second quarter 2003 payroll tax returns due

August 15th Individual Income Tax extended returns due August 15th.  July monthly payroll tax deposits for IRS & State

September 15th  Corporate returns extended in March due.Third quarter 2003 estimated taxes due

August 15th is the deadline for 2002 extended 1040 individual returns