December 2003 Newsletter HOLIDAY & NEW YEAR GREETINGS Please read and enjoy this latest edition of my newsletter. As we approach the 2004 tax season, I hope all of you have had a nice holiday and can look back on a prosperous 2003. The economy for 2004 looks promising. The Dow has gone up roughly 3,000 points over the past six months despite some big ups and downs along the way. Real estate still seems like a good investment, prices continue to rise and the Federal Reserve has indicated it does not plan to increase interest rates until late 2005 so mortgage rates will continue to stay low. In my office, for 2004, we are planning on moving toward a paperless office. Many of you will have the opportunity to get your organizers by e-mail this year, and we are going to implement electronic filing for some of the returns this year. I have really appreciated your business and if you have friends, relatives and/or acquaintances that need a CPA, please refer them to me. 2003 BRINGS TAX RELIEF The Jobs and Growth Tax Relief Reconciliation Act of 2003 was created to encourage new investment and create jobs. There are no tax increases and most of the more important changes were retroactive back to January 1, 2003. Listed below are some of the more significant tax changes: Reduced individual tax rates Reduced rates on capital gains Lower rates on dividend income Reduced marriage penalty Increased child tax credit Higher rates of depreciation write-offs Increased 10% and 15% MFJ brackets Increased Alternative Minimum tax threshold Fortunately, there’s something positive for almost everyone. ‘04 MILEAGE DEDUCTION RATES You can still claim deductions for the business-related use of an auto using either the standard mileage rate method or the actual expense method. The standard rates for 2004 are: Business mileage: 37 1/2 cents Medical mileage: 14 cents Charitable mileage: 14 cents Moving mileage: 14 cents DOG-GONE GOOD GOLF CPABOB’s inaugural golf tournament will benefit the Oceanside "Canine Companions for Independence". CCI provides assistance dogs to those people with developmental or physical disabilities. The dogs are provided at virtually no cost. Scheduled for May 17, 2004 at the El Camino CC, the tourney has a donation goal of $15,000 and is lopsided with opportunities to win prizes. Century 21 Sea Coast in Encinitas is a "Big Dog" sponsor thanks to Greg Brown and his associates. Entries for two-man teams are $225 per player. Included are golf, box lunch, tee prizes, awards festival and random prize give-aways valued at over $5,000. Men and women golfers of all handicaps are welcome. For prize donations and early entries call 760-434-7762. REFINANCING = SHORTER TERM Carl Spiteri of Loanstar Financial has provided the following insight. Carl has been a client and mortgage broker in San Diego for several years and we highly recommend him for your initial financing or refinancing needs. He can be reached at 619-544-6444. "Homeowners are no longer just refinancing to reduce their mortgage payment and/or receive cash. Rates are so low that homeowners can shorten the term of their loans as well. Many baby boomers want to get rid of their loan burden before they retire. Borrowers who have gone from 30 year to 15 year obligations are now interested in the new 10 year loans. The benefit of a 2nd or third refinance to gain this added advantage cannot be overstated." DEDUCTIBLE HOME EQUITY LINE OF CREDIT By converting consumer debt into home equity debt you can turn non-deductible debt into a tax-deductible expense. Here’s how it works. You may borrow up to $100,000 on the equity you have in your home subsequent to the initial purchase and the “acquisition indebtedness. The interest on this home equity line of credit will be deductible. If you plan to finance more than $100,000, see your preferred CPA for assistance. TAX IDEAS FOR 2004 & BEYOND Bunch Deductions If your income will be about the same in the next two years try bunching as many deductions as you can into one year and then use the standard deduction in the other year. Hire Your Children If you own your own business, consider hiring your children. You can deduct the wages you pay them from your income and report it for them at their lower tax rates. Pension Contributions Are you at least 50 years old and desirous of increasing your pension contributions? You may make additional contributions to your IRA of $3,000/yr. This limit may be increased to $3,500. See your CPA. Employ Spouse for Medical Deduction If you are self employed it may make sense for you to hire your spouse and give your employee-spouse medical benefits. Many benefits not deductible by the owner may be deductible by employer for employee-spouse. Use a Roth IRA Consider using a Roth IRA to increase your after tax retirement income. Qualifying retirement distributions from your Roth are tax free. TAX FREE HOME SALE Thinking of selling your home and downsizing now that the kids are gone? You can avoid paying tax on the sale of your home if you meet certain requirements. First, you must have owned and used the home as your principal residence for two of the last five years prior to the sale. Couples can enjoy $500,000 of tax-free profits. Single taxpayers qualify for $250,000. JOBS and GROWTH TAX RELIEF and RECONCILIATION ACT - TIMELINE 2003 Standard deduction for married couples increased and 15% tax rate expanded. AMT exemption amounts increased for 2003 and 2004 Increase in amount of expensing by small business from $25,000 to $100,000 for tax years ‘03, ‘04 and 2005. January 1: Tax rates are reduced for stock dividends received retroactive to January 1, 2003. May 5: Bonus depreciation for businesses up to 50% for property acquired after 5/5/03 and before 1/1/05. May 6: Effective date of sale or exchange qualifying for reduced maximum tax rate on long term capital gains. May 23: Congress approves Jobs and Growth Tax Relief Reconciliation Act. May 28: President Bush signs the legislation into law. July: Reduction in federal tax w/h from paychecks. Summer: Child care tax credit to $1,000 from $600. 25 million families receive $400 for each child under 17. 2005 Child tax credit drops back to $700 Student deduction and tax rate drops to 2002 levels for married couples. 2008 January 1: Dividend rate drops to 0% for individuals subject to the 5% capital gains rate. December31: Last day for all JGTRRA capital gains and dividend rates. 2009 January 1: Capital gains rates revert to 20% and 10% and dividends are taxed at ordinary income tax rates. 2010 January 1: Child tax credit reverts to $1,000 2011 Marginal tax rates revert to pre-EGTRRA (Economic Growth and Tax Relief Act of 2001) rates This newsletter contains information assembled by Robert Davis, CPA, CVA and is offered as a reference to his clients, friends and other professionals.