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Personal Exemptions

The 2003 exemption amount for each qualifying dependent is $3,050, up $50 from year 2002. The exemption amount is phased out by 2% for each $2,500 or fraction ($1,250 for married filing separately) by which the taxpayer’s adjusted gross income exceeds: $139,500 for single taxpayers, $104,625 for married filing separately, $209,250 for married filing jointly (also qualifying widows and widowers) and $174,400 for heads of household.  

ESTATE AND GIFT TAX EXCLUSION is  $1,000,000 in 2003.  

GAIN ON SALE OF PRINCIPAL RESIDENCE EXCLUDES up to $500,000 for married taxpayers that have owned and occupied residence for 2 of previous 5 years. Single taxpayers exclude up to $250,000. Not a one-time exclusion. Can be used as often as the taxpayer qualifies.  

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Standard Deductions

The new standard deductions for those who do not itemize are as follows:

Married Filing Jointly           $7,950

Single                                   $4,750

Head of Household               $7,000

Married filing separately      $3,975

Additional Deductions for Age 65 or over and/or Blind

Single/ Head of Household    $1,150

Married/Surviving Spouse      $ 950

Itemized Deduction Phase-out

Deductions are reduced by 3% for every dollar of Adjusted Gross Income over $139,500 ($69,750 if married filing separately) up to a maximum phase-out of 80% of itemized deductions (medical expenses, investment interest, casualty losses and gambling losses are excluded).

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Tax Rates

For tax year 2003, there are six tax brackets - a 10%, 15%, 25%, 28%, 33%, and 35% .  

MAXIMUM TAX RATE ON LONG-TERM CAPITAL GAINS IS GENERALLY 15% on assets (including stock) held for more than 12 months; and, for certain lower income taxpayers, there are reduced rates. Some exceptions apply.  

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Standard Mileage Rate

The standard mileage rate for business travel in 2003 is 36 cents per mile. The standard rate for moving expense and medical mileage is 12 cents per mile. The rate for charity mileage is 14 cents per mile.  

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Social Security Earnings 

2003 rates at which Social security is deducted remains at 6.2% for employees on wages up to $87,000. The Medicare rates remain at 1.45% per employee on all wages. There is no ceiling on the amount of income subject to the Medicare Tax.

Social Security Earnings Limits - Recipients ages 62 - 64 can earn as much as $11,520 in 2003 without having benefits reduced. There is no limit to what a person 65 or over can earn without losing benefits. People 62 - 64 lose benefits of $1.00 for every $2.00 earned over $11,520.  

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Non-Cash Charitable Contributions

For taxpayers who itemize deductions (Schedule A), non-cash charitable contributions can greatly reduce tax liability.  You can deduct charitable contributions up to 50% of your modified adjusted gross income (AGI).  Excess contributions can be carried forward to future returns.

Non-cash charitable contributions are one of the most frequently overlooked and/or undervalued deductions for taxpayers. Donations of clothing, household goods, furniture, appliances, old autos and even the use of autos can be itemized and valued using a very user-friendly and IRS sanctioned method to arrive at considerable total deductions.

The IRS asks that you determine the fair market value of the item(s) you are donating (usually a price at which a willing buyer and a willing seller will exchange the item). You will also need to keep track of the qualified charity to which you gave the item(s) and obtain receipts proving the donation. Even the mileage to drop off the goods at your charity is deductible. This coming year, clean out your closets and donate the things you don’t need.  Get and keep receipts from both your cash and NON-CASH donations.  

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CREDITS

CHILD TAX CREDIT of $1,000 for each qualifying child under age 13 in 2003.

EDUCATION TAX CREDIT ("HOPE" Scholarship) provides up to $1,500 for college tuition, fees and related colleges expenses (except room & board and books) for first 2 years of school.

LIFETIME LEARNING CREDIT of 20% per year of education expenses available for any taxpayer. Up to $2,000 per year. Not available in same year that a "HOPE" credit is taken.

DEDUCTION FOR STUDENT LOAN INTEREST PAID (AGI Reduction) is $2,500 for 2003 and later. You don’t need to itemize to take the deduction.  Phase-out limits apply.  

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IRA RULES

EDUCATION IRAs.  (Coverdell ESA) Maximum annual contribution for 2002 is $2,000 per child under age 18.

TRADITIONAL IRAs.  Must have earned income. Maximum contribution for year 2003 is $3,000. Non-working spouse can also contribute up to $3,000 per year.  Phase-out limits for deductible IRAs for participants with retirement plans apply.  No phase-out limit for non-deductible IRA.   Taxpayers over age 50 can contribute additional $500. 

ROTH IRA.  Must have earned income. Maximum contribution is $3,000 for year 2003.  Taxpayers over age 50 can contribute additional $500.  Phase-out limits apply.

IRA Withdrawals

Minimum Distribution Amounts from Traditional IRA’s must begin by April 1st of the year after a taxpayer turns age 70 1/2.

Roth IRA distributions are required only after the death of participant.  

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