Armada's Bulletin Board
What the new tax law means for you.
On May 28, President Bush signed the Jobs and Growth Tax Relief Reconciliation Act of 2003 into law. The $350 billion tax cut package may put a few extra dollars in your pocket by lowering the top tax brackets, widening the bottom tax brackets, offering additional child tax credits, reducing taxes on dividends and capital gains, and more.
Expands Lowest Income Tax Brackets
Almost everyone will save a few dollars when the lowest tax brackets are widened. Now the first $7,000 of income for singles, and the first $14,000 of income for married couples, will be taxed at 10%. In the past, only $6,000 of a singles’ income and $12,000 of a couples’ income was taxed at 10%.
Drops Rates for Top Brackets
You may realize further savings as the four highest personal income tax brackets are lowered, retroactive to January 1, 2003.
- The 38.6% bracket is now 35%
- The 35% bracket is now 33%
- The 30% bracket is now 28%
- The 27% bracket is now 25%
The Internal Revenue Service (IRS) is expected to adjust withholding in early July, so you could be bringing home a bigger paycheck by late summer.
Higher Child Tax Credits
Many parents, who declared dependent children on their 2002 tax forms, will be receiving $400 per child from the IRS. Under the new law, the child tax credit will increase from $600 to $1,000 for each child under the age of seventeen. Rather than make you wait and claim the credit on this year’s taxes, the government has decided to advance payment by mailing out checks.
You’ll receive a notice from the IRS telling you how much you will receive. Hang onto the notice, you’ll need it for your 2003 tax return.
Not everyone qualifies for the new tax credit. A single must have an income of less than $75,000, and a couple filing jointly must have an income of less than $110,000. Families earning $10,500 to $26,625 do not qualify either.
Marriage Penalty Tax Relief
If you’ve paid higher taxes ever since you married and began filing jointly, relief is here. The new tax act raises the standard deduction for married couples to $9,500 from $7,950. No longer will married couples pay more because they file jointly rather than singly.
New Stock Dividend Tax Cuts
Investors should be smiling. Before, stock dividends were taxed as ordinary income. Now, dividends will be taxed at 15%. Investors in the lowest tax brackets will pay only 5% until 2007, and then pay nothing for the 2008 tax year. The lower rates apply to all dividends received during 2003.
Stock mutual fund investors may benefit from paying lower taxes on the dividends paid out by their funds. Equity income funds and value funds, like Armada’s Large Cap Value Fund, often pay dividend income.
New Capital Gains Tax Cuts
Taxes on long-term capital gains also will fall to 15%. Investors in the 10% and 15% tax brackets get a bonus in 2008. During that year, they owe no taxes on capital gains. The lower rates apply to capital gains received after May 5, 2003.
If you’ve been thinking about rebalancing your portfolio but have hesitated because of the potential capital gains tax liability, now may be the time. The new tax law’s capital gains tax cut, combined with capital losses incurred during the past three years may make rebalancing more palatable. However, please keep in mind that like any other investment strategy rebalancing cannot guarantee a profit or prevent a loss in a declining market.
Higher Exemption for the Alternative Minimum Tax
Middle-income taxpayers who have been subject to the alternative minimum tax (AMT) will get relief, too. The AMT exemption is being increased to $58,000 for married couples filing jointly, and $40,250 for single filers.
Business Benefits
Large and small business owners will realize benefits, as well. Write-offs for buying new equipment will rise to 50% for larger companies, and small-business expensing will be increased to $100,000 from $25,000.
For greater detail and more complete information about the Jobs and Growth Tax Relief Reconciliation Act of 2003, please watch for Armada’s 2003 Tax Reference Guide, which will be available in early 2004.
The new tax law has sunset provisions that will expire unless Congress extends the law.
Armada Funds, National City Investment Management Company, Professional Funds Distributor, and their affiliates do not render tax advice. For tax advice specific to your situation, please consult your tax advisor.
Past performance is no guarantee of future results. Mutual funds involve risk, including possible loss or principal. Shares of Armada Funds are not insured by the FDIC, are not deposits or obligations of, or guaranteed by the bank, and involve investment risk.
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