2003
Volume 9 Number 1
©2003 Mitchell Freedman Accountancy Corporation
Volume 9 Number 1
©2003 Mitchell Freedman Accountancy Corporation
Corner Office - The Second Quarter in Review
Tips And Alerts - Some Peace at Last
Feature article - JGTRRA (Now, That's a Mouthful)
Heard In The Hall
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From The Corner OfficeBy Mitchell Freedman, CPA/PFS |
With the June 30, 2003 quarter in the books this is a good time to review what has happened. Despite optimism, after the major fighting of the Iraq war ended, the economy remained in the doldrums. Near the end of June The Federal Reserve Board stated, "the economy...has yet to exhibit sustainable growth." Additionally, while Chairman Alan Greenspan says it is remote, the Fed still plans to be alert for deflation. While some minor deflation may not be a terrible thing, if it goes uncontrolled it could create havoc in the economy. The last time the U.S. economy had a strong dose of deflation was during the Great Depression, following the ‘29 stock market crash. The result was not only price declines, but also job losses, stock price declines, and drops in real estate prices.
As for the financial markets, the 2nd quarter of 2003 produced some good news. The Fed lowered the Federal Funds Rate (for the 13th time since January 2001) by 1/4%, to 1%...the lowest rate in 45 years! This action could spawn another wave of mortgage refinancing. It may also continue to drive the booming Southern California residential real estate market. Anecdotal experience of our clients' activities in this area indicates that all over the Los Angeles metropolitan area, homes put on the market are selling virtually immediately and more often than not at prices in excess of the listing price, with multiple bidders. Buyers are putting in preemptive bids at above list to make sure they can purchase those properties on the market. This phenomenon is occurring in all segments of the market from moderate to multi-million dollar properties. Of course, this also means that clients who are purchasing are paying record prices for the properties, but with interest rates so low, it is easier for them to afford to pay such prices.
The stock markets also performed well during the quarter, with the major indexes showing the best performance in more than 4½ years. The indexes for large cap, small cap, technology, and foreign securities showed solid double digit gains. U.S. Government bonds performed well and high yield bonds also provided a double digit return. All of these categories are now solidly "in the black" for the year-to-date.
As for the rest of the year, we'll just have to wait and see.
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Tips and AlertsSome Peace at LastBy Stacie Hancock |
The Federal Trade Commission (FTC) has created an "opt-out" registry where consumers can register their home and cell phone number(s) and drastically cut down on most telemarketers’ calls. Business to business calls are not covered by the registry and you may still receive calls from political organizations, charities, telephone surveyors, or companies with which you have an existing business relationship.
If you register by August 31, 2003 most telemarketer must stop calling by October 1, 2003 and you will be able to file a complaint after that date. If you register on or after September 1, 2003 you can file a complaint after three months.
In order to file a complaint, your phone number must be registered and you must have the company’s name and/or phone number. You will also need the date and time of the call. The complaints will be entered into Consumer Sentinel, a database that is available to civil and criminal law enforcement agencies worldwide. Your complaint will help the FTC investigate the company and perhaps lead to legal action. Businesses that break the rules after October 1, 2003, face fines of $11,000 for each infraction.
For more information and to register visit http://www.donotcall.gov
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JGTRRA (Now, That's a Mouthful)
By Brian Switaj and Tom Trent, EA |
Just before Memorial Day, Congress overcame major partisan differences and passed the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA or The Act), which was signed into law by President Bush on May 28, 2003. While the President didn't get everything on his $700 billion wish list, The Act is still the third largest tax cut in U.S. history, providing approximately $350 billion in relief. Because many of the new law's provisions are retroactive to January 1, 2003, and it lowers marginal personal income tax rates across the board, The Act has probably already saved you money and promises to save you even more for the rest of this year and over the next several years. However, The Act also includes a somewhat bewildering collection of beginning and ending dates, making effective tax planning to maximize these benefits both essential and challenging. This article discusses a few key elements of The Act as they relate to our clients and readers.
Individual Tax Rates The Act accelerates, retroactive to January 1, 2003, lower tax rates that were scheduled to be effective in 2006. Taxpayers in the highest tax bracket benefit the most from this decrease with a 3.6% reduction (from 38.6% to 35%), while the 35%, 30% and 27% brackets each go down 2% (to 33%, 28%, and 25%). Also, the upper limit for the 10% bracket increases $1,000 for single taxpayers and $2,000 for married taxpayers filing joint returns. Curiously, the 10% and 15% brackets for heads of household are unchanged by The Act. Unless Congress acts, these percentages will continue until 2011, when they will revert to their pre-2001 rates.
Marriage Penalty In 2001, tax reform legislation was passed to provide relief for the so-called "marriage penalty." However, this relief was delayed until 2005. The new law accelerates this relief by immediately doubling the standard deduction for the married filing jointly (MFJ) filing status to twice that of single taxpayers and expanding the 15% tax bracket (but not any of the higher brackets) to twice the amount for a single person. However, this relief is only in effect for two years (2003 and 2004). In 2005, the standard deduction for married taxpayers will decrease to 174% of the single rate, while the 15% bracket will shrink to 180% of the single threshold. But, that too will be temporary with these percentages gradually increasing back to double that of single taxpayers by 2009.
Child Tax Credit The Act accelerates legislation enacted in 2001, increasing the Child Tax Credit by $400 (from $600 to $1,000). For 2003, this increase will be paid in advance, based on the information in the taxpayer’s filed 2002 Federal Tax Return. These advance payments will begin in July. As before, the credit phases out for upper income taxpayers.
In 2005, the credit reverts back to the Pre-Act Phase-in amount ($700), increasing over 5 years to $1,000 in 2010.
PHC Tax Rate Although it has received little attention, the new law contains a major boon for corporations that are classified as personal holding companies, such as "loan-out" corporations. The new law lowers the PHC tax rate from 38.6% to 15%, a massive 23.6% decrease!
Capital Gains Prior to The Act, the top tax rate for qualified long-term capital gains was 20%, with a 10% rate for taxpayers in the 10% bracket. For assets sold after May 5, 2003, the new law reduces these rates to 15% and 5%. However, as before, not all assets qualify. For example, gains on collectibles such as art, antiques, or most coins are still taxed at 28%. The rates will return to their pre act levels in 2009.
Dividends The Act has introduced a new means of treating the taxability of dividends. In previous years, dividends received by an individual were taxed as ordinary income. Under the new law, certain qualifying dividends on stock and equity mutual funds will be taxed at the same rate as long-term capital gains (15% or 5%). Major questions have arisen as to exactly what corporate distributions will qualify for the reduced rate. Many taxpayers will need to follow a complex set of rules in order to be safe. This rate will stay in effect until 2009, when taxation of dividends will return to the way they were treated before The Act.
Expensing Tangible Property (Sec. 179) Prior to the new law, business taxpayers could elect to immediately deduct, rather than depreciate, up to $25,000 in qualified property placed in service for the year. The new law boosts that expensing to $100,000 for property placed in service in tax years beginning in 2003, 2004, and 2005. For 2004 and 2005, the amounts are scheduled to be indexed for inflation.
Bonus Depreciation In 2001, a special 30-percent bonus depreciation allowance first became available. Under The Act, that percentage now rises to 50 percent. The type of property that qualifies for this special allowance remains unchanged.
This article is not intended to be an authoritative explanation of JGTRRA, and there are many exceptions, limitations, and traps for the unwary. Furthermore, this new law, by its own terms, provides only temporary relief. Congress managed to keep the cost of the tax cuts within $350 billion limit at which it was able to gain Senate approval only be restricting the application of the new tax breaks to a series of overlapping "windows of opportunity" that last from between two and eight years. While hope remains that future Congresses will either extend these cuts or make them permanent, the automatic expiration of these provisions reinforces the ongoing need for income and transaction planning.
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Heard in the Hall |
On May 9 and 10, 2003 Mitch Freedman was a co-presenter at Cal State San Bernardino for the California Jump$tart Coalition "Teach the Teachers" initiative, instructing both pre-service and new teachers regarding their personal finance issues. On May 15th and 16th he attended the CalCPA Personal Financial Planning Committee meeting in Denver. On May 19, 2003 he was a speaker for the AICPA High Net Worth Client Conference in Las Vegas on the subject, "Tax Planning for the Mobile Client." On May 30th Mitch was interviewed by the USA Radio Network on financial issues related to disaster victims.
This Spring Mitch was featured in an article entitled, "Get Organized - Reap the Benefits of Having Orderly Financial Records" in the Los Angeles Times and latimes.com. The May 2003 issue of Financial Planning featured Mitch in article entitled "In Case of Emergency." In the June 16 to July 6, 2003 issue of Accounting Today Mitch was featured in an article entitled, "Head Games: Helping Quell Investors' Irrational Antics." The June/July 2003 issue of CPA Magazine featured Mitch in an article entitled, "Star Treatment - CPAs and Celebrity Clients."