|
The new year brings a mixed bag of tax law changes, some of them tied to the changing cost of living. While many will reap a benefit from increased deductions and credits, others will find that they are subject to more tax, or must take smaller deductions.
Here are the major changes that affect taxpayers, beginning January 1, 2003:
Deductions, Exemptions, Estate Tax
- Standard Deductions -- In 2003, the standard deduction amounts rise to $7,950 (filing jointly and surviving spouse), $3,975 (marrieds filing separately) $4,750 (single) and $7,000 (head of household). The standard deduction for dependents claimed on another’s return stays the same for 2003 at $750.
- Mileage Rate Deductions -- The standard per-mile rate used in taking a deduction for business use of an automobile is 36.0 cents per mile for 2003, down from 36.5 cents per mile in 2002. The rate for medical use declines from 13 cents per mile to 12 cents per mile, as does the rate used in computing moving expense. Charitable use mileage remains at 14 cents per mile.
- Exemptions -- Each personal exemption will be worth $3,050 on 2003 returns, up from $3,000 on 2002 returns.
- Estate Tax -- The top estate tax bracket and rate will go down in 2003 so that the highest rate will be 49 percent, payable on taxable estates in excess $2,000,000.
Social Security, Withholding
- Social Security Tax Adjustment for Inflation -- The maximum amount of wages subject to Social Security old age, survivors’ and disability withholding increases from $84,900 to $87,000 for 2003.
- Social Security Income Limits -- In 2003, people under age 65 can earn up to $11,520 before seeing a reduction in their Social Security benefits. If 2003 is the year in which a person reaches age 65, he or she may earn up to $2,560 per month until reaching age 65 without a reduction in benefits. Once taxpayers turn 65, they can earn any amount without a reduction in benefits.
- Nanny Tax Threshold -- You can pay a domestic worker, such as a maid or nanny, up to $1,400 in 2003 without having to wrestle with federal payroll tax withholding on wages.
Education
- Lifetime Learning Credit -- The limit on eligible expenses on which the 20-percent credit is computed rises to $10,000, producing a potential maximum credit of $2,000.
Retirement
- IRA Phaseouts -- In 2003, the ability for those covered by a qualified plan to make a deductible contribution to an IRA will begin to phase out at $40,000 in adjusted gross income and end at $50,000 for single filers. For marrieds filing jointly, the phaseout range is $60,000 to $70,000.
- Retirement Plan Contributions -- In 2003, the maximum that can be contributed to a 401(k), 403(b) or 457 plan increases to $12,000. The limit on elective contributions for SIMPLE 401(k) plans increases to $8,000 in 2003.
- Catch-up Contributions -- In 2003, there is an increase in catch-up contributions for 401(k)s from $1,000 to $2,000 and SIMPLE plans from $500 to $1,000.
Small Business
- Expense Election -- The amount that can be "expensed" rather than depreciated under Section 179 of the Internal Revenue Code increases to $25,000 in 2003.
Dependent Care
- Dependent Care Credit -- Allowable employment-related expenses used in figuring the credit increase to $3,000 for one qualifying child, $6,000 for two or more. Maximum applicable percentage increases to 35 percent. Phaseout threshold will begin at $15,000 rather than at $10,000.
To keep up-to-date regarding all the tax law changes affecting your taxes and your business, be sure to pick up a copy of CCH Business Owner's Toolkit Tax Guide 2003. This easy-to-use tax reference--and accompanying FREE offer for online tax return preparation and filing--is available at major booksellers nationwide, by calling 1-800-248-3248, or by visiting our online bookstore.
Added to the news archive on January 27, 2003.
|
