Jobs and Growth Tax Relief Reconciliation Act of 2003
For the third time in three years Congress has passed a major tax cut package. Designated as the “Jobs and Growth Tax Relief Reconciliation Act of 2003,” the Act creates a complicated web of tax provisions with temporary, phased-in/phased-out, and retroactive effective dates. Though heavily geared towards individual taxpayers, there are some important business provisions that restaurant owners should be aware of.. Barring additional Congressional action, numerous additional provisions are also scheduled to end at different times over the next few years. Here is a general overview of the key tax provisions:
Tax Provisions Effecting Businesses
This Act includes two temporary tax breaks for businesses. Under the first of these breaks businesses can expense up to $100,000 per year in new equipment purchases through 2005, subject to certain limitations.
Under a second provision, businesses can depreciate more of their equipment purchases sooner, due to changes in the so-called "bonus depreciation" rules enacted in 2001. The previous 30% bonus depreciation rules have been increased to 50%.
Tax Provisions Effecting Individuals
There is an immediate reduction in the marginal tax brackets for individuals. For 2003 and later years the tax brackets are 10%, 15%, 25%, 28%, 33%, and 35% (previously 10%, 15%, 27%, 30%, 35%, and 38.6%).
The expansion in the size of the 10% tax bracket previously scheduled through 2008, is accelerated into 2003, but only for 2 years. For married taxpayers, the 10% tax bracket for 2003 ends at $14,000 of taxable income. For single taxpayers, it’s $7,000. In 2005, the brackets revert back to pre-2003 levels.
The Act also reduces the so-called marriage penalty. In 2003 and 2004, the end point of the 15% tax bracket for married taxpayers will be twice the end point of the 15% tax bracket for single taxpayers, but only for 2 years. In 2005, the end points revert back to pre-2003 levels.
Net long-term capital gains are now taxed at a maximum rate of 5% or 15% depending upon your normal income tax bracket. The lower rates apply to sales of capital assets held for more than one year, if the sale occurs on or after May 5, 2003.
For dividends received in 2003 through 2008, tax rates of 5% or 15% apply depending upon your normal income tax bracket.
For 2003 - 2005, the child tax credit increases to $1,000 per qualifying dependent child under the age of 17. After 2005, the credit will fall back to $700 for 2006-2008.
Though adequate consideration should be given to the tax implications of any financial or business decision, such decisions should not be made solely upon the tax implications. Due to the complicated nature of this Act, careful planning with your tax advisor is strongly recommended.
Originally published in the Washington State Restaurant Association Journal