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TAX AND SEPDEICTIIAOLN

BUSINESS
LAW REPORT
A Newsletter from the Tax & Corporate Practice Group

www.flastergreenberg.com Summer 2003

Editor’s Note…
Peter R. Spirgel and Markley S. Roderick
This issue of the Tax & Business Law Report is devoted to summarizing some of the
principal business-related provisions of the tax bill just signed into law by President Bush,
known officially as the “Jobs and Growth Tax Relief Reconciliation Act of 2003.”
The most striking feature of the new bill is that almost none of its provisions are perma-
nent. Instead, most provisions are scheduled to expire between 2005 and 2009. These so-
called “sunset” provisions were included to keep the nominal cost of the bill below a politi-
cally acceptable threshold. Future legislation may push back or repeal altogether the sched-
uled expiration dates, but for now the temporary nature of many of the bill’s provisions
Peter R. Spirgel Markley S. Roderick makes long-term tax planning something of a guessing game.
Should you want more information about the new bill, we encourage you to speak with one of our tax professionals.
If you provide us with your e-mail address and the e-mail addresses of colleagues who would be interested in receiving this Report,
we would be pleased to include that information in the data bank for this Report. Please send that information to us at
firm@flastergreenberg.com.

KEY HIGHLIGHTS OF THE


JOBS AND GROWTH TAX RELIEF
RECONCILIATION ACT OF 2003

Tax Change Effective Dates


Personal Tax Rates Under current law, individuals pay tax on “ordinary The new rates are retroactive to
income” at rates of 38.6%, 35%, 30%, 27%, 15%, 01/01/2003 and will expire on
and 10%, depending on income levels. 12/31/2010. At that point the top
four rates will increase to 39.6%, 36%,
The Act reduces the top four rates to 35%, 33%,
31%, and 28%, i.e., above their current
28%, and 25%. The 10% and 15% tax brackets are
levels.
not reduced; but more earnings of individuals in
these brackets will be taxed at the 10% rate.

(continued on page 2)

Copyright © 2003 Tax & Business Law Report • Flaster/Greenberg P.C.


2

Jobs and Growth Tax Relief Reconciliation Act of 2003 (continued)


Tax Change Effective Dates
Tax on Capital Gains Under current law, gains recognized on the sale of The new rates are effective for sales of
capital assets held for more than one year are taxed capital assets after 05/05/2003 and
at lower rates than ordinary income. before 01/01/2009.
For most assets and most taxpayers, the Act reduces Where a sale occurred before
the tax rate on long-term capital gain from 20% to 05/06/2003, but is being reported
15%. using the installment method, the new
rates are also effective for payments
Similarly, the maximum capital gain rate for lower-
received after 05/05/2003 and before
bracket taxpayers drops from 10% to 5%.
01/01/2009.
The Act makes no change to either the 28% rate
applicable to collectibles and certain small business
stock or to the 25% rate applicable to “recaptured”
depreciation on certain real estate.

Tax on Dividends Under current law, individuals are taxed on dividends The new rates are effective for dividends
at the rates applicable to ordinary income. received in tax years that begin after
12/31/2002 and before 01/01/2009.
Under the Act, dividends will be taxed at the same
rates that apply under the Act to long-term capital
gains (generally 15%) for both the regular tax and the
alternative minimum tax.

First Year Depreciation Under current law, property purchased for use in a The change applies to property acquired
trade or business may be depreciated over a stipulated after 05/05/2003 and before
number of years. 01/01/2005. Property will not qualify if
there was a binding written contract to
The Act allows an additional depreciation deduction
acquire the property before
in the first year the property is purchased equal to 50%
05/06/2003.
of the adjusted basis of qualified property.

Section 179 Deduction Under current law, small businesses are permitted to The changes are effective for tax years
write off—rather than depreciate—a certain amount of that begin after 2002 and before 2006.
their new equipment purchases each year.
The amount that can be written off each year is
increased under the Act from $25,000 to $100,000.
The write-off allowance is decreased for businesses
whose equipment purchases exceed a certain level. The
Act increases this level from $200,000 to $400,000.
Under the Act, off-the-shelf software used in a busi-
ness is eligible for the section 179 deduction.

Corporate Estimated Tax Under current law, corporate estimated tax payments The change applies only to estimated tax
must be made no later than April 15th, June 15th, payments due in September 2003.
September 15th, and December 15th.
Under the Act, 25% of any installment due in
September 2003 may be deferred until October 1,
2003.

(continued on page 3)

Tax & Business Law Report • Flaster/Greenberg P.C.


3

Jobs and Growth Tax Relief Reconciliation Act of 2003 (continued)


Tax Change Effective Dates
Marriage Penalty Under a phenomenon of the rate system known com- Both of these changes will apply only for
monly as the “marriage penalty,” where a husband and the 2003 and 2004 tax years.
wife both work, they pay more tax together than they
would pay if they were not married.
The Act softens the impact of the marriage penalty in
two ways. First, it increases the standard deduction for
married filers to double the standard deduction for sin-
gle filers. Second, it increases the 15% tax bracket limit
for married filers to double the limit for single filers.

AMT Exemption The alternative minimum tax is a separate tax system, These changes are effective only for 2003
similar to the regular tax system, but with certain and 2004.
deductions that are allowed under the regular tax
Starting in 2005 the exemption amounts
system added back. Taxpayers pay the higher of their
will be $45,000 for joint filers, $33,750
regular tax bill or their AMT tax bill, not both.
for single filers, and $22,500 for married
In calculating AMT taxable income, taxpayers may filing separately, i.e., below their current
subtract an “exemption amount.” The Act increases levels.
these exemption amounts to $58,000 for joint filers
(from $49,000), $40,250 for single filers (from
$35,750), and $29,000 for married filing separately
(from $24,500).

Increased Collection The IRS announced that it plans to engage private


Efforts For collection agencies to pursue collection of approxi-
Delinquent Accounts mately 2.6 million delinquent taxpayer accounts.

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