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Money Management (Distributed by the New Jersey Society of Certified Public Accountants)

**SPECIAL SERIES ON THE NEW TAX LAWS**


Estimated Taxes And The New Tax Act


Most taxpayers don't have to do a thing to reap the key benefits of the $350 billion Jobs and Growth Tax Relief Reconciliation Act of 2003 signed into law on May 28, 2003. By mid-summer, when employers start using new tax withholding tables that reflect the reduction in the tax rates, employees can expect to see higher paychecks. And, beginning in late July, the IRS will automatically send taxpayers who qualify a check representing an advance payment of the increase in the child tax credit.
According to the New Jersey Society of Certified Public Accountants (NJSCPA), self-employed individuals and taxpayers with significant investment income don't have it quite as easy. In order to take immediate advantage of the lower tax rates on regular income, capital gains, and dividends this year, they will have to adjust their estimated tax payments. Those estimated payments are due September 15, 2003, and January 15, 2004.

Use IRS Form 1040ES To Calculate Estimated Tax Payments
Form 1040ES, Estimated Tax for Individuals, comes with a worksheet you can use to estimate how much tax you will owe for 2003. Be sure to consider the following changes in the 2003 Act when making those estimations.
* Reduced tax rates - The new tax rates are 25, 28, 33, and 35 percent, down from 27, 30, 35, and 38.6 percent, respectively. These changes are retroactive to the beginning of 2003.
* Expansion of tax brackets - Retroactive to January 1, 2003, the 10 percent bracket is increased from $6,000 to $7,000 for single filers and from $12,000 to $14,000 for joint filers. This expansion of the 10 percent bracket helps all taxpayers, because the first part of everyone's income falls in the bottom bracket. For heads of household, the 10 percent bracket covers the first $10,000, same as before.
* Marriage penalty relief - The 15 percent bracket for joint filers is now twice as wide as the 15 percent bracket for single filers. Under the new law, income that would otherwise be pushed the next tax bracket and taxed at 25 percent is taxed at 15 percent. The top end of the 15 percent bracket for married taxpayers rises from $47,450 under prior law to $56,800 for 2003.
* Higher standard deductions - The standard deduction for joint filers is now $9,500, double the amount for single filers ($4,750).
* Capital gains tax reduction - Net Long-term capital gains under the new tax law from property held for more than a year is 15 percent (5 percent for taxpayers in the 10 percent and 15 percent tax brackets). The lower rates apply only to long-term capital gains from sales on or after May 6, 2003. Note that the 28 percent maximum rate still applies to sales of collectibles and certain small business stock.
* Lower dividend tax rate - Effective for all of 2003 and through year-end 2008, the maximum tax rate for qualified dividends from domestic corporations and qualified foreign corporations is now 15 percent (5 percent for taxpayers in the 10 percent and 15 percent tax brackets). Previously, dividends were taxed as ordinary income, at your regular tax rate, which could have been as high as 38.6 percent.
* Higher alternative minimum tax (AMT) exemption amount - The new law raises the AMT exemption amounts. The exemption for single taxpayers rises to $40,250 (up from $35,750) and the exemption for married couples rises to $58,000 (up from $49,000). The higher exemption amounts apply only to tax years 2003 and 2004.
* Business provisions enhanced - For small business owners who place in service qualifying property in 2003, changes in the Section 179 expensing deduction and first-year depreciation allowance should also be considered in computing estimated taxes.

A CPA Can Help
Computing your taxes based on the new rates for income, capital gains, and dividends will help you avoid paying more than necessary in estimated taxes and making, in effect, an interest-free loan to the government. A CPA can help you compute your estimated taxes. If you don't have a CPA, you can easily locate one online using the NJSCPA Find-A-CPA service. Just go to www.findacpa.org and in a few clicks, you can locate a highly qualified professional who is right for you.
If you would like to receive more information on various financial matters, subscribe to E-CPA, the NJSCPA's free, monthly email newsletter. To subscribe, visit http:/www.njscpa.org/finances or email a subscription request to e-cpa@njscpa.org.

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Money Management is a weekly column on personal finance distributed by the NJSCPA.

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