Tax-law changes for 2003 were intended to keep cash in individuals pockets so they would pump money into the economy, and the law definitely will accomplish the former. Some of the changes were meant to give businesses more to spend as well.


A number of the breaks included in the 2003 Jobs and Growth Tax Relief Reconciliation Act will be in effect only this year and next, so businesses and individual investors alike should look closely at whether they can take advantage of those changes during that two-year window of opportunity.


Many of the changes that affect personal taxpayers, however, require no action, Spokane tax accountants say.


The act cuts taxesparticularly for married taxpayersby boosting the standard deduction and expanding the lowest two tax brackets, says Chris Hesse, director of taxation for Spokane-based LeMaster & Daniels PLLC. Those two changes provide relief from whats been known as the marriage penalty by increasing the standard deduction for married couples who file jointly and by boosting the amount of their income that will be taxed at the 10 percent and 15 percent rates. Single filers also will benefit, but to a smaller extent.


Steve Williams, tax manager at Williams & Webster PS, of Spokane, says that because of the changes, a married couple with no children who have a gross income of $90,000 and take the standard deduction will see their income-tax liability fall by $2,000 this year.


The two breaks are in addition to the increased child tax credit, to $1,000 per child from $600 per child, included in the tax relief act. Most parents of children under 17 years old received advance payment for that break in the mail earlier this year in the form of a check.


Really, its a family-friendly tax bill, Hesse says.


This years standard deductions, which apply to taxpayers who dont itemize deductions, such as home mortgage interest and charitable contributions, are $4,750 for single filers and $9,500 for married couples who file jointly. Last year, those amounts were $4,700 and $7,850, respectively.


Tax-bracket expansions in the act sweeten the two lowest brackets.


Under the act, the lowest tax bracketalso known as the 10 percent bracket, because thats the rate at which income in that bracket is taxed applies to the first $7,000 of taxable income for individuals and the first $14,000 of taxable income for married couples. Those ceilings were increased from last years $6,000 and $12,000, respectively. The 10 percent bracket reverts back to its 2002 levels after 2004.


In the second-lowest tax bracket, the 15 percent bracket, the ceiling has been increased to $28,400 for a single filer, up only slightly from $27,950 the previous year. Married couples who file jointly, however, fared far better. The amount of taxable income in that bracket was raised to $56,800 for married couples, up sharply from $46,700 in 2002.


For married couples, that means their first $14,000 of taxable income will be taxed at the 10 percent rate, and the next $42,800 will be taxed at the 15 percent rate, giving them substantial relief in addition to what they can enjoy from the increased standard deduction.


The marriage-penalty relief is in effect this year and next, then tax law defaults to the provisions of the 2001 tax act, which phases in marriage-penalty relief over the following four years.


The 2003 law doesnt change substantially the ranges of the upper tax brackets, but the tax rates that apply to each of those brackets have decreased by between 2 percentage points and 4 percentage points, which will save taxpayers money. For example, the tax rate in the top bracket, which begins at $311,950, is 35 percent this year, down from 38.6 percent in the 2002 tax year. Tax rates in the upper brackets are to remain at the new levels through 2010.


For personal investors


For individuals, the law includes cuts in rates at which long-term capital gains and stock dividends will be taxed.


Rates for both long-term capital gains and dividends have been reduced to 5 percent from 10 percent for taxpayers in the two lowest tax brackets. For taxpayers whose income falls in higher tax brackets, those rates have been cut to 15 percent from 20 percent.


Hesse says the capital-gains tax-rate reduction doesnt apply to gains realized by corporations, but does apply to those received by estates and trusts. In all applicable cases, investments must have been held for more than a year, he says. If theyve been held for a shorter time, gains will be taxed at regular income-tax rates.


Obviously, Hesse says, selling assets and realizing capital gains must make sense in the handling of an investment, rather than just for tax reasons. If some investments are to be sold for gains in the near future, however, a seller might check to see if theres a tax benefit in selling now rather than later, he says.


For example, if a taxpayer is in the 15 percent tax bracket and has some investments he or she plans on selling, Hesse says, It may be appropriate to go ahead and sell that stock today and pay the tax at 5 percent in order to capture that lower rate.


Qualifying dividends include those paid to the owners of shares of publicly traded and closely held domestic corporations, as well as certain foreign companies, that have been held for more than 60 days, Hesse says. Money-market fund dividends dont qualify.


For business


Kevin Sell, tax director at the Spokane office of Seattle-based Moss Adams LLP, says the few new tax-law changes that affect businesses involve expensing of equipment and accelerated depreciation on new-equipment purchases.


The new law has quadrupledto $100,000 from $25,000the amount that can be expensed for certain purchases through Section 179, Sell says.


Hesse says that qualifying purchases include new or used office equipment, manufacturing equipment, and single-purpose agricultural and horticultural structures.


The law also includes a 50 percent accelerated depreciation for new assets that are depreciated over 20 years or less.


Under that stipulation, 50 percent of the cost of a new piece of equipment can be written off in the year it was purchased, if it was bought between May 6, 2003, which is the date the law was enacted, and Dec. 31, 2004. The accelerated depreciation amount can be written off along with the typical annual depreciation of the equipment.


For example, if a company last summer bought a $100,000 tractor that typically would be depreciated over the course of five years, it could write off a total of $60,000 in the first year$50,000 in bonus depreciation and $10,000 as one-fifth of the remaining value.