New tax law may call for changes in your 2003 planning

On May 28, 2003, President Bush signed the 2003 Tax Act into law.  All the tax cuts in the new law affect 2003 taxes, so you should take them into account in this year's tax planning.  Here's a quick summary of the key provisions.

Lower tax rates and wider brackets will affect almost all taxpayers.  If you're an employee, you should see bigger paychecks starting in July as withholding drops.  If you're self-employed, you should be able to reduce estimated tax payments for the rest of the year.  Caution: Withholding from paychecks will be lower than normal in the second half of the year to compensate for amounts overwithheld in the first half.  Expect to see slightly higher amounts withheld starting in January 2004.

The child tax credit increases from $600 to $1,000 per child for 2003 and 2004.  The IRS plans to pay the 2003 increase in advance.  Expect to receive a check for up to $400 per child sometime later this summer.  Caution: You may not receive a full $400 per child.  The IRS plans to calculate the payment based on last year's returns.  If you don't receive all that you're due, you can claim the difference next year when you file your 2003 return.

Investment income gets a major tax break.  The tax on most dividends and long-term capital gains falls to 15% (5% if you're in the lower two tax brackets).  The new rates apply to dividends received in 2003 and long-term capital gains realized after May 5, 2003.  Review your investment strategies carefully to maximize tax savings.

Business equipment purchases get two breaks under the new law.  Small businesses can take an immediate tax write-off for up to $100,000 of equipment purchased during 2003.  All businesses can also claim bonus first-year depreciation of 50% of the cost of new equipment purchased after May 5, 2003.