Gordon J Maier & Company, LLP
Newsletter
2003 Numbers


Updated to reflect changes made by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (2003 Tax Act).

Individual Income Tax

1. Standard deductions

  • Regular standard deductions: $9,500 (increased from $7,950 by the 2003 Tax Act for MFJ or surviving spouse); $4,750 (S); $7,000 (HH); $3,975 (MFS).
  • Standard deduction for dependent: $750, or $250 + earned income, whichever is greater (same as 2002). However, the standard deduction may not exceed the regular standard deduction for that individual.
  • Additional standard deduction for married 65 or over or blind: $950. For single or HH age 65 or over or blind: $1,150 (same as 2002).

2. Itemized deductions

  • Phaseout of itemized deductions begins at AGI of $139,500 (all returns except MFS); $69,750 (MFS).

3. Personal exemptions

  • Personal exemption for 2003: $3,050.
  • Phaseout of personal exemption begins at AGI of $209,250 (MFJ or surviving spouse); $174,400 (HH); $139,500 (S); $104,625 (MFS).

4. Kiddie tax

  • Same as 2002 (child under age 14 with unearned income over $1,500 is subject to kiddie tax).
  • AMT exemption for child under age 14: the lesser of (1) $5,600 + child's earned income, or (2) $40,250 (increased from $35,750 by the 2003 Tax Act).

5. Marginal income tax rates

  • The tax rate schedules for 2003 will be as follows:

Single taxpayers

If taxable income is: Your tax is:
Not over $7,000 10% of taxable income
Over $7,000 to $28,400 $700 + 15% of the excess over $7,000
Over $28,400 to $68,800 $3,910 + 25% of the excess over $28,400
Over $68,800 to $143,500 $14,010 + 28% of the excess over $68,800
Over $143,500 to $311,950 $34,926 + 33% of the excess over $143,500
Over $311,950 $90,514.50+ 35% of the excess over $311,950

Married filing jointly and surviving spouses

If taxable income is: Your tax is:
Not over $14,000 10% of taxable income
Over $14,000 to $56,800 $1,400 + 15% of the excess over $14,000
Over $56,800 to $114,650 $7,820 + 25% of the excess over $56,800
Over $114,650 to $174,700 $22,282.50 + 28% of the excess over $114,650
Over $174,700 to $311,950 $39,096.50 + 33% of the excess over $174,700
Over $311,950 $84,389 + 35% of the excess over $311,950

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Married individuals filing separately

If taxable income is: Your tax is:
Not over $7,000 10% of taxable income
Over $7,000 to $28,400 $700 + 15% of the excess over $7,000
Over $28,400 to $57,325 $3,910 + 25% of the excess over $28,400
Over $57,325 to $87,350 $11,141.25 + 28% of the excess over $57,325
Over $87,350 to $155,975 $19,548.25 + 33% of the excess over $87,350
Over $155,975 $42,194.50 + 35% of the excess over $155,975

Heads of household

If taxable income is: Your tax is:
Not over $10,000 10% of taxable income
Over $10,000 to $38,050 $1,000 + 15% of the excess over $10,000
Over $38,050 to $98,250 $5,207.50 + 25% of the excess over $38,050
Over $98,250 to $159,100 $20,257.50 + 28% of the excess over $98,250
Over $159,100 to $311,950 $37,295.50 + 33% of the excess over $159,100
Over $311,950 $87,736 + 35% of the excess over $311,950

Trusts and estates

If taxable income is: Your tax is:
Not over $1,900 15% of taxable income
Over $1,900 to $4,500 $285 + 25% of the excess over $1,900
Over $4,500 to $6,850 $935 + 28% of the excess over $4,500
Over $6,850 to $9,350 $1,593 + 33% of the excess over $6,850
Over $9,350 $2,418 + 35% of the excess over $9,350

6. Luxury auto excise tax

  • No luxury auto excise tax in 2003.

7. Earned income tax credit (EITC)

  • Disqualified income limit (generally investment income): $2,600.
  • Maximum amount of earned income on which EITC is based: $4,990 (no qualifying children); $7,490 (joint filers with one qualifying child); $10,510 (two or more qualifying children).
  • Phaseout of EITC begins at AGI of $7,240 (joint filers with no qualifying children); $6,240 (for others with no qualifying children); $14,730 (joint filers with one or more qualifying children); $13,730 (for others with one or more qualifying children).

8. Charitable deductions

  • De minimis rules: Charitable contributions will be fully deductible if the donor makes a minimum payment of $40 and receives token gifts with a cost of $8.00 or less. Charitable contributions will also be fully deductible if the benefit received by the donor doesn't exceed the lesser of $80 or 2% of the amount of the contribution.
  • Use of auto for charitable purposes: The deductible standard mileage rate is 14 cents per mile.

9. Foreign earned income exclusion

  • The foreign earned income exclusion is $80,000.

10. Deductible standard mileage rates

  • Use of auto for medical purposes: 12 cents per mile.
  • Use of auto for moving purposes: 12 cents per mile.

11. Child tax credit

  • Increased to $1,000 per qualifying child for 2003 and 2004 (from $600) by the 2003 Tax Act.

12. Alternative Minimum Tax (AMT)
Maximum AMT exemption amount for 2003 and 2004 under the 2003 Tax Act:

  • Married filing jointly or surviving spouse, $58,000 (previously $49,000).
  • Single or head of household, $40,250 (previously $35,750).
  • Married filing separately, $29,000 (previously $24,500).

AMT income exemption phaseout threshold:

  • Married filing jointly or surviving spouse, $150,000.
  • Single or head of household, $112,500.
  • Married filing separately, $75,000.

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Investment Planning

1. Capital gains under the 2003 Tax Act

  • 20% rate is reduced to 15% for long-term capital gains on sales or exchanges on or after May 6, 2003 and before January 1, 2009. The 15% rate applies to taxpayers who are in a marginal tax bracket greater than 15%.
  • 10% rate is reduced to 5% (zero in 2008) on long-term capital gains for taxpayers who are in the 15% or lower marginal tax brackets.

2. Dividends under the 2003 Tax Act

  • Dividends received by an individual shareholder from domestic and qualified foreign corporations will generally be taxed at the same rates as capital gains (15%, 5% for those in the 15% or lower marginal tax brackets, with the 5% rate lowered to zero for 2008). This change is effective for dividends received in 2003 through 2008.
  • Previously, dividends were taxed as ordinary income.

Education Planning

1. U.S. savings bonds

  • Phaseout of interest exclusion begins at modified AGI over $58,500 ($87,750 on a joint return).

2. Coverdell education savings accounts (formerly known as education IRAs)

  • Annual contribution limit is $2,000.

Retirement Planning

1. 401(k), SARSEP, and 403(b) contributions (elective deferrals)

  • Annual contribution limit is $12,000.
  • Elective deferral for a SIMPLE retirement account is $8,000.

2. Section 457 contributions

  • Annual contribution limit is $12,000.

3. Defined contribution plans (Section 415 limit)

  • The dollar limit is $40,000.

4. Defined benefit plans

  • The annual benefit limit is $160,000.

5. IRA contributions (deductible, nondeductible, and Roth IRAs)

  • Annual contribution limit is $3,000 (increasing to $5,000 in 2008), plus $500 catch-up if 50 or older.

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Business Planning

1. Qualified transportation fringe benefits

  • Employee can exclude up to $190 per month for qualified parking expenses.
  • Employee can exclude up to $100 per month for combined value of transit passes and transportation in a commuter highway vehicle.

2. Earnings subject to Social Security taxes (taxable wage base)

  • Maximum annual earnings subject to Social Security taxes rises to $87,000 in 2003.
  • Social Security and Medicare combined tax rate remains at 15.3% (same as 2002), while the 6.2% OASDI (Old Age, Survivors, and Disability Insurance) tax rate applies to wages up to the new $87,000 wage base.

3. Health insurance deduction for self-employed

  • Deduction for health insurance premiums paid by self-employed is 100% in 2003.

4. Optional standard mileage rate

  • Use of auto for business purposes: 36 cents per mile.

5. Increased section 179 expensing under the 2003 Tax Act

  • Maximum amount that may be deducted under section 179 is increased to $100,000 for property placed in service for tax years 2003, 2004, and 2005 (increased from $25,000).
  • Deduction reduced by amount by which cost of qualifying property placed in service during the year exceeds $400,000 (increased from $200,000).

6. Special additional first-year depreciation allowance for certain property under the 2003 Tax Act

  • Special additional (bonus) first-year depreciation deduction equal to 50% of the adjusted basis of qualified property acquired after May 5, 2003 and before January 1, 2005, and placed in service prior to January 1, 2006.
  • The Job Creation and Worker Assistance Act of 2002 provided for 30% special additional first-year depreciation.
  • Property is not eligible for both the 50% and 30% special additional first-year depreciation.

7. Tax on accumulated earnings and personal holding company income under the 2003 Tax Act

  • The tax rate on accumulated earnings and personal holding company income is reduced to 15% under the 2003 Tax Act. Previously, these items were taxed at the highest marginal personal income tax rate.

Estate Planning

1. Gift/transfer tax exclusions

  • The annual gift tax exclusion is $11,000 ($22,000 for spouses).
  • The annual exclusion for gifts to noncitizen spouses is $112,000.
  • The generation-skipping transfer tax (GSTT) exemption is $1,120,000.

2. Special use valuation reduction limit

  • The limit on the decrease in value that can result from the use of special valuation increases to $840,000 in 2003.

3. Qualified conservation easement exclusion

  • If requirements are met, the executor of the estate of a taxpayer dying after 1997 may elect to exclude up to 40% of the value of land subject to a qualified conservation easement. The amount that may be excluded from the gross estate is $500,000 in 2003.

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Protection Planning

1. Long-term care insurance (LTCI)

  • Qualified LTCI premiums are deductible as medical expenses within the following limits:
Age Limit on deduction
40 or less $250
41-50 $470
51-60 $940
61-70 $2,510
71 and over $3,130
  • Qualified LTCI benefits are excludable from income (as amounts received for personal injuries and sickness), subject to a per diem limitation of $220.

Government Benefits

1. Social Security (general information)

  • Amount of earnings required for a quarter of coverage will be $890.
  • Domestic employee coverage threshold will be $1,400.
  • Average monthly Social Security benefit check for retired workers will increase to $895 in January 2003.
  • Maximum monthly benefit for a low-income couple (SSI) will increase to $829.
  • Maximum monthly benefit for a low-income beneficiary (SSI) will increase to $552.
  • Full retirement age increases to 65 years and 2 months.
  • Annual maximum earnings for Social Security beneficiary under full retirement age without a reduction in benefits (retirement earnings test) will be $960 monthly ($11,520 annually). One dollar in benefits will be withheld for every $2 in earnings above the limit. One dollar in benefits will be withheld for every $3 in earnings in excess of the earnings threshold in the calendar year of attaining age 65.
  • The 2003 Social Security monthly PIA (primary insurance amount) formula will be 90% of the first $606 of AIME (average index monthly earnings), plus 32% of the AIME over $606 and through $3,653, plus 15% of the AIME over $3,653.

2. Earnings subject to Social Security taxes (taxable wage base)

  • Maximum annual earnings subject to Social Security taxes rises to $87,000 in 2003.
  • Social Security and Medicare combined tax rate remains at 15.3% (same as 2002), while the 6.2% OASDI (Old Age, Survivors, and Disability Insurance) tax rate applies to wages up to the new $87,000 wage base.

3. Medicare (general information)

  • Medicare Part B premiums rise to $58.70 per month in 2003.
  • Medicare Part B deductible remains at $100 (same as 2002).
  • Medicare Part A monthly premium will be $316 for individuals with less than 30 quarters of Medicare-covered employment and for disabled individuals under age 65 who lost disability benefits because of work and earnings.
  • Medicare Part A monthly premiums for seniors with 30 to 39 quarters of Medicare-covered employment will be $174.

4. Medicare Part A deductibles for inpatient hospital care

  • Deductible for up to 60 days of inpatient hospital care (fee-for-service Medicare) will increase to $840.
  • Deductible for 61 to 90 days will be $210 per day.
  • Deductible for 91 to 150 days will be $420 per day.
  • Deductible for beneficiaries in a skilled nursing facility in a benefit period will be $105 per day for the 21st through 100th day of extended care services.

Other

1. Qualified funeral trusts

  • Contributions to a qualified funeral trust may not exceed $7,800.

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Prepared by Broadridge Investor Communication Solutions, Inc, Copyright 2011