New York (Sept. 9, 2003) -- This year's tax cut gives many taxpayers an opportunity to put tax dollars back into their pockets now, according to John Battaglia, a director in the Private Client Advisors practice of Deloitte & Touche.
"Some individuals mistakenly think that the immediate benefits of this year's tax changes were limited to the advanced payment of the increased child credit or changes in withholding tables," Battaglia said. "But individuals should review their 2003 tax position now and take appropriate steps to minimize taxes, especially with the due date for third quarter estimated taxes (September 15th) right around the corner. These steps can produce immediate reductions to estimated tax payments."
Some points Battaglia recommends keeping in mind at estimate time include:
- Basing estimates on the current year's liability. Battaglia advises checking whether it is more advantageous to base estimates on the projected current year liability instead of last year's because the new law dropped income tax rates for this year.
- Adjusting withholding. The new federal withholding rate for bonus or supplemental payments has increased to 25 percent. "If you need additional tax withheld to avoid estimated tax penalties in the earlier quarters," says Battaglia, "you should alert your payroll department to withhold additional tax before receiving the bonus."
The tax law changes make it even more critical to start year-end tax planning now, said Battaglia. For example, by taking advantage of the new 50 percent bonus depreciation or the increased asset expensing, both available this year, some individuals may be able to lower their incomes enough to benefit from different types of deductions or credits, such as personal exemptions, IRAs, the child tax credit, and the Hope Scholarship and Lifetime Learning credits. Higher income taxpayers typically lose these tax benefits as their incomes exceed certain adjusted gross income thresholds.And some nuances of the new law may catch taxpayers by surprise. "If you plan to use capital losses to offset capital gains, make sure you check how capital transactions occurring before the law change net against post transactions," he said.
"In some cases, taxpayers may find that netting combinations of losses and gains may reduce the gains that would have qualified for the new lower capital gains rate."
-- WebCPA staff
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