Largely designed to stimulate a flagging U.S. economy, The Economic Growth and Tax Relief Reconciliation Act of 2001, The Job Creation and Workers Assistance Act of 2002, and The Jobs Creation and Tax Relief Reconciliation Act of 2003 create the following tax benefits:

Lower Tax Rates - The six tax bracket rates which were lowered in 2001 and 2002 were lowered again for 2003. Rates will be 10%, 15%, 25%, 28%, 33% and 35%.

Higher Income Ranges - In addition to lower tax rates, the income tax brackets have been expanded to subject more of your income to lower tax rates:

• The 10% income tax bracket created in 2001 is expanded from a top level of $6,000 to $7,000 for a single person and from $12,000 to $14,000 for married couples filing a joint return.



• The 15% income tax bracket for married couples is expanded to twice that of single taxpayers. This is Congress' effort to reduce the "marriage penalty." Formerly, a married couple would move into the next higher tax bracket sooner than two single taxpayers with the same combined income level.



• The income ranges for the top four tax brackets are also higher than in 2002 due to the normal annual inflation adjustments.

More Marriage Penalty Relief - In addition to expanding the 15% tax bracket for married couples, the 2003 Tax Relief Act increases the Standard Deduction for married couples as well. It increases from $7,950 (only 67% above that of single taxpayers) to $9,500 (100% above, or twice, that of singles).

Higher Child Tax Credit - This tax credit for dependent children under the age of 17 increases from $600 in 2002 to $1,000 for 2003. To stimulate the economy, Congress elected to advance payments of up to $400 per child to qualified taxpayers on the basis of information they provided on their 2002 tax returns. These advances were mailed out during the summer. When established in 1998, the Child Tax Credit was only $400 per child.

Lower Capital Gains - The long term capital gains tax rate has been lowered progressively over recent years. It has declined from 28% to 20% and now to 15% for 2003 provided gains are realized after May 6, 2003. The new lower 2003 rate is applicable on gains from May 6, 2003 through 2008. Due to a budget balancing "Sunset" clause, the gains rate returns to the 20% rate that existed prior to the 2003 legislation.

Lower Dividend Tax - The tax rate paid on dividend income has been lowered to 15% for 2003. Formerly, dividends were taxed at ordinary income tax rates as high as 38.6%. This lower rate is also good through 2008. This provision reduces the hotly-contested double taxation of corporate dividends.

Higher Retirement Savings - The 2003 contribution limits for retirement savings are up. Hopefully most clients can put away the maximum retirement savings on a pretax basis during 2003.

Higher Lifetime Learning Credit - Effective in 2003, the amount of qualified expenses used to calculate the 20% Lifetime Learning Credit increases from $5,000 to $10,000. Thus, the maximum available tax credit moves from $1,000 to $2,000 per taxpayer.

Self-Employed Health Insurance - In 2003, self-employed individuals will be able to deduct 100% of their health insurance premiums.

Social Security and Medicare - The maximum wages subject to Social Security Tax (6.2%) increases to $87,000 up from $84,900 in 2003.

Small Business Incentives - To stimulate the economy and growth in U.S. small business, the 2003 Tax Relief Act:

• Increases the ability of businesses to expense rather than amortize capital investment from $25,000 to $100,000.



• Raises the first-year bonus depreciation deduction from 30% to 50% for assets placed in service after May 5, 2003 and before January 2, 2005.

Please don't hesitate to call if you have questions about any of these topics or how these changes affect you.