November 15, 2003
Dear tax client,
We are excited about working with you this year and into the future. An important role as a tax advisor is timely service. To provide this to you we encourage you to call in advance of bringing your tax information to us. This will enable us to anticipate our work flow and deliver your return within the preferred 2 week turn around time.
As tax experts, our staff is gearing up for the upcoming tax season. With so many changes in store for 2003 and beyond it is important to communicate opportunities for you to minimize taxes. The best method to employ is tax planning of transactions. If you have questions it is not too late to plan. Once December rolls around any opportunity to lower taxes is gone. We have included some new changes and opportunities below:
For property to qualify for 50 % bonus depreciation its original use must begin with the taxpayer after May 5, 2003. Reconditioning or rebuilding property satisfies the original use requirement. Types of property are tangible personal property with a MACRS or ADS recovery period of 20 years or less. Qualified leasehold improvements, software and single purpose horticultural structures would qualify. A leasehold improvement is an improvement to an interior portion of nonresidential real property.
Dividends taxed at new rates do not count as investment income to allow deduction of investment interest on schedule A of 1040 for individuals.
Medical expense deduction on schedule A now allowed for the following:
For those who have flexible spending accounts with employers for medical coverage Rev Ruling 2003-58 allows nonprescription medical supplies to apply. Such plans need to be amended by employers to allow employees to get tax free reimbursements for over the counter drugs and other nonprescription medical supplies. Check with your employer and look back into your records and save these receipts. Save receipts for 2004.
The standard deduction increases to $9500 for those filing joint returns.
The mileage allowance rate is 36 cents for 2003.
If a business regularly renovates assets that do not materially extend their useful lives or increase their value a rehabilitation program can be currently expensed. So the cost of major engine overhauls need not be capitalized any longer in most cases.
Taxpayers planning on purchasing heavy SUV’s may want to do so quickly. Congress is thinking about closing the expensing loophole for SUV’s and limits it to $25,000 on vehicles weighing up to 14,000 pounds in 2004.
Those reaching age 70 ½ during 2003 must begin receiving payouts from their IRA’s. These rules are complicated and if this applies to you we suggest an appointment.
Educators can deduct up to $250 for out of pocket classroom supplies in 2003. To do so you must keep receipts. This does not apply to home schooling parents.
With the reduced capital gain rates it is imperative to avoid short-term gains.
The current tax law changes make it beneficial to structure installment contract payments to coincide with the tax free treatment (up to the 15% bracket amount) in 2008.
The IRS is extending a new compliance investigation for organizations that reported contributions on their 990 returns and have neglected to list any fund raising expenses. This affects officers and those serving as board members of non-profit organizations.
The rate reduction in regular tax tables, lower capital gain and dividend rates means a greater chance alternative minimum tax may come into play at 26%. You will pay alternative minimum tax if it exceeds your regular tax liability for the year. This has the potential to trap those with taxable income between $60,000 and $120,000, or those with substantial capital and dividend income. This fact is not popularly known from the news.
We enjoy the chance to advise you and your business interests and if these affect your tax situation please call for an appointment in 2003.
Lawrence R. Yoder, CPA