What's New for 2003 Taxes
Annually, WEAC arranges for John Gillis, from the
accounting firm of Wegner & Associates, to provide this overview
of changes to federal and state tax laws.
MAJOR CHANGES TO FEDERAL FORM 1040 IN 2003 LINE
BY LINE
Federal Form 1040 pages 1 and 2:
Line 9b. Qualified Dividends - Qualified dividends
paid to non-corporate shareholders will now be taxed at the favorable
rates that apply to net capital gain (i.e., 15% or 5%).
Line 13. Capital Gain or Loss - Long-term capital
gains realized on or after May 6, 2003 will be taxed no higher than
5% or 15% (generally at 10% or 20%, for capital gains taken into account
before May 6, 2003).
Line 24. IRA Deduction - The adjusted gross
income phaseout ranges for making deductible contributions to regular
IRAs by taxpayers that are active participants in an employer-sponsored
retirement plan are higher for 2003. The phaseout range is $60,000 to
$70,000 for joint return filers, $40,000 to $50,000 for single taxpayers.
The 2001 Tax Act increased the maximum annual contribution limit from
$2,000 to $3,000 for 2002 and beyond. Individuals who are at least 50
by the end of the tax year can also make additional “catch-up”
contributions of up to $500.
Caution: A taxpayer’s IRA contribution
limit as described in the preceding paragraph applies to the combined
contribution to all of the taxpayer’s traditional and Roth IRAs.
Thus, a taxpayer who contributes $3,000 to a Roth IRA cannot also contribute
to a traditional IRA, and vice versa unless he or she is eligible to
make “catch up” contributions. Allowable contributions can
be split between the two.
Line 29. Self-Employed Health Insurance Deduction
- A qualifying self-employed (or a partner or a more-than-2%-shareholder
of an S corporation) may deduct 100% of amounts paid for medical insurance.
Line 37. Itemized Deduction Or Standard Deduction
- For 2003, the standard deduction is $4,750 for single filers, $4,750
for married persons filing separately, $9,500 for joint filers and qualifying
widow(er)s, and $7,000 for heads of household. Itemized deductions (other
than deductions for medical expenses, investment interest, non-business
casualty and theft losses and gambling losses) are reduced if adjusted
gross income in 2003 is more than $139,500 ($69,750 for marrieds filing
separately).
Line 39. Personal Exemptions - The exemption
for 2003 is $3,050. The exemption starts to phase out if adjusted gross
income exceeds: $139,500 for single filers, $104,625 for married persons
filing separately, $209,250 for joint filers and qualifying widow(er)s,
and $174,400 for heads of household.
Line 41. Tax - There are three changes:
1. For single individuals and married taxpayers filing separately,
the 10% bracket applies to the first $7,000 of taxable income (to the
first $14,000 of taxable income for married joint filers and qualifying
surviving spouses).
2. The 15% tax bracket for joint returns is widened. 3. The regular
income tax rates above 15% are reduced to 25%, 28%, 33%, and 35%.
Line 42. Alternative Minimum Tax (Form 6251)
- The maximum AMT exemption for individuals is increased to $58,000
for married taxpayers filing jointly, to $29,000 for married individuals
filing separately, and to $40,250 for unmarried individuals.
Line 45. Credit For Child And Dependent Care
Expenses - The maximum credit is 35% of employment-related expenses,
and the maximum amount of employment-related expenses that may be used
to compute the credit is $3,000 for one qualifying individual and $6,000
for two or more qualifying individuals.
Line 47. Education Credits - For 2003, the
availability of the Hope and Lifetime Learning credit phases out ratably
for taxpayers with a modified adjusted gross income of $41,000 to $51,000
($83,000 to $103,000 for joint return filers). For 2003, the maximum
Lifetime Learning credit was increased from $1,000 to $2,000.
Line 49. Child Tax Credit - The maximum child
tax credit is increased from $600 to $1,000 per eligible child (the
increase in the child tax credit amount was paid in advance during 2003
to many taxpayers).
Line 50. Adoption Credit - The maximum adoption
credit is $10,160 for 2003 and phases out when modified adjusted gross
income exceeds $152,390.
Line 55. Self-employment Tax - The maximum
amount of self-employment income subject to the FICA tax is $87,000.
There is no ceiling on the Medicare tax wage base.
Line 63. Earned Income Credit - The maximum
credit is higher and phaseout figures have been revised.
Line 64. Excess Social Security And RRTA Tax
Withheld - The maximum Social Security (OASDI) tax for 2003 was increased
to $5,394 (computed on the first $87,000 of wages) for purposes of computing
the credit for excess tax withheld.
Schedule A itemized deductions:
Line 1. Medical And Dental Expenses - These expenses now include
eye surgery to correct defective vision and procedures to facilitate
pregnancy.
Line 20. Unreimbursed Employee Business Expenses - For 2003,
the standard mileage rate for business travel was lowered to 36 cents
a mile.
Line 28. Total Itemized Deductions - Adjusted gross income over
$139,500 ($69,750 for marrieds filing separately) triggers a phased-in
reduction in itemized deductions.
Schedule B interest and dividends:
Line 3. Excludable Interest On Series EE Or Series I U.S. Savings
Bonds - The exclusion for education-related savings bond interest phases
out at higher income levels. For 2003, the phaseout begins at modified
adjusted gross income above $58,500 ($87,750 on a joint return).
KEY CHANGES IN WISCONSIN TAXES
Classroom expenses
Educators may now deduct up to $250 in expenses to arrive at Wisconsin
taxable income. For tax years beginning in 2002 or 2003, an “eligible
educator” is allowed a pre-adjusted gross income deduction on the
Federal Form 1040 of up to $250 for classroom expenses. (The deduction
was reported on line 23 of the Form 1040 for 2002 and should be in the
same area of the Form 1040 for 2003.) Eligible expenses include books,
supplies, and computer equipment.
On the 2002 Wisconsin Form 1 return, this deduction was not available
and was “added back” to federal adjusted gross income to arrive
at Wisconsin taxable income. On the 2003 Wisconsin Form 1, these classroom
expenses will now be deductible. (The Wisconsin Form 1 instructions
were not available as of this writing, and we suggest that you read
the Form 1 instructions carefully to see if Wisconsin has modified the
deduction in any way.)
Marital property
Wisconsin has recently issued new and very lengthy guidance related
to the impact of marital property laws on the reporting of income by
spouses and ex-spouses living in Wisconsin. Great care should be taken
and professional advice should be sought for returns for the year in
which a divorce occurs or whenever married couples decide to file separately.
Gift Taxes
The annual gift tax exclusion is $11,000 per recipient for 2003 and
2004.
PAC dues not deductible
As you work on your 2002 taxes, remember that contributions to the
WEAC Political Action Committee or any other PAC are not tax deductible.
Posted December 12, 2003