Adjust Estimated Tax Payments to Get Tax Cut Benefits
Some of the tax cuts in the Jobs and Growth Tax Relief Reconciliation Act of 2003 will reach taxpayers without any action on their part. For example, the IRS will automatically figure the advance payments of the Child Tax Credit increase that will be sent starting July 25 to most taxpayers who claimed this credit on their 2002 returns. And by July 1, employers should use new tax withholding tables, reflecting lower tax rates and a higher standard deduction for married couples.
But for self-employed persons and those who have significant income from capital gains or dividends, the way to get the tax benefits this year may be to adjust their remaining 2003 estimated tax payments. These payments are due June 16 and Sept. 15, 2003, and Jan. 15, 2004.
When using the worksheets with Form 1040-ES, Estimated Tax for Individuals, or Publication 505, Tax Withholding and Estimated Tax, take these changes for individuals into account:
A higher standard deduction for married persons: $9,500 for couples; $4,750 for those filing separate returns.
Tax rate reductions: the 10% rate applies to the first $7,000 of taxable income for single persons, $14,000 for married persons filing jointly; the 15% rate for married couples covers up to $56,800 of taxable income; and all rates above 15% are lower. Use the new tax rate schedules
to figure your 2003 tax.
Lower tax rates for long-term capital gains on assets sold after May 5, 2003, and for qualifying 2003 dividend income: 5% for those that would have been taxed at a regular rate of 10% or 15%; 15% for most items that would have been taxed at a higher rate. (But there are no changes in the special rates that apply to unrecaptured section 1250 gain, collectibles gain, or section 1202 gain.)
A higher alternative minimum tax exemption amount: $40,250 for a single person or a head of household; $58,000 for married persons filing jointly and qualifying widow(er)s; and $29,000 for married persons filing separately.
Business owners should also consider changes to the first-year depreciation allowance and the Section 179 expensing deduction.
You dont have to wait until your 2003 return to benefit from the tax cuts. Act now to bring the tax you pay closer to the tax you owe.
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