Jobs and Growth Tax Relief Reconciliation Act of 2003-Something For Almost Everyone

By Sandy LeDuc
LeDuc and Sikowitz

This legislation is far from tax simplification with its numerous rules, effective dates, phase-ins, sunsets and accelerations but it delivers relief for many business owners and wealthy individuals. The sunset provisions for some of the rate reductions and other provisions make the tax angles of business and financial planning important.

Rates
The maximum long-term capital gains rate has declined from 20% to 15% for transactions on or after May 6, 2003. For low income taxpayers the previous 10% maximum rate has declined to 5%. Rate changes are in effect until 2007 and 2008.

Planning that resulted in the reporting of deemed sales in 2001 in exchange for lower rates in 2005 and thereafter on five year property may have been neutralized.

A reduced rate on dividends of 15% (5% for lower income taxpayers) is probably the most universally significant change for investors and shareholders in C corporations. This is effective retroactive to January 1, 2003. The rates are lowered on Code Section 531 accumulated earnings tax and Code Section 541 personal holding company tax as well. Legislative attempts to overcome opportunities for abuse make identification of qualified dividends somewhat complex. The rate decreases sunset in 2008.

Individual tax rates have declined effective January 1, 2003. The rates under old law were 10%, 15%, 27%, 30%, 35% and 38.6%. The new rates are 10%, 15%, 25%, 28%, 33% and 35%. These rates are in effect until 2010 after which they revert to rates slightly higher than those under old law.

C Corporation versus S Corporation
The lowering of the individual rates eliminates the bargain that existed in C corporation rates. Since C corporation income continues to bear the burden of double taxation, even at the lowered 15% rate, the S corporation and other pass-through entities still make sense.

A change in Massachusetts law has done away with the Mass business trust's ability to eliminate the surcharge for S corporations with more than $6 million in revenue.

First-year Expensing of Tangible Personal Property
The Section 179 first-year expense provision for tangible personal property has been increased from $25,000 to $100,000. This deduction can be accessed by any business with total annual investment of $400,000 or less. This increase is available through 2005.

Bonus Depreciation
In addition to the first year expensing, the bonus depreciation of 30% has been increased to 50% for any asset acquired after May 5, 2003 and before January 1, 2005.

Other Provisions
Child care credit, marriage penalty relief and alternative minimum tax relief are all addressed by the Act.

Summer 2003 -Volume 13, Number 3

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