DONOVAN J. MILLER, CPA, PC

Accountants and Consultants

36150 DEQUINDRE, SUITE 610

STERLING HEIGHTS, MI 48310

Ph 586 977 7930 Fax 586 977 7945

www.miller-cpa.com Email: info@miller-cpa.com

* CLIENT ALERT *

June 2003

The Jobs and Growth Tax Relief Reconciliation Act of 2003 (Tax Relief Act of 2003) contains a wide variety of tax provisions that may affect you. The purpose of this letter is to alert you to the key provisions contained in the Tax Relief Act of 2003, which present tax planning opportunities as well as potential pitfalls.

The major provisions of the Tax Relief Act of 2003 include the following:

Income Tax Rate Reduction and Expansion - For all tax brackets there is a tax rate reduction retroactive to January 1, 2003. The 10 percent bracket rate expands by $1,000, from $6,000 to $7,000 for singles and married persons filing separately, and by $2,000 from $12,000 to $14,000 for married persons filing jointly and surviving spouses for 2003 and 2004. There has been a reduction in tax brackets above 15% from 27% to 25%, from 30% to 28%, from 35% to 33%, and from 38.6% to 35%. For post-2010 tax years the tax rates are scheduled to revert back to pre-2001 levels of 28%, 31%, 36% and 39.6%.

Reduced Individual Capital Gain Tax Rates - The maximum net capital gains rates have been reduced from 20 percent to 15 percent and from 10 percent to 5 percent for capital assets held for more than one year. The new net capital gain rates are effective for sales and exchanges (and installment payments received) after May 5, 2003 and through December 31, 2007. The capital gain rates of 18 percent and 8 percent for property held five years or more has effectively been repealed until 2009. The 8 percent capital gain rate is repealed effective May 6, 2003. These new net capital gain rates apply for both regular and alternative minimum tax purposes. The higher rates that apply to unrecaptured section 1250 gain, collectibles gain, and section 1202 gain have not changed.

Dividend Tax Relief for Individuals - Eligible dividends received by individuals from domestic and qualifying foreign corporations will be taxed at the same net capital gains maximum rate of 15% or 5%. These new capital gain and dividend tax rates apply for both regular and alternative minimum tax purposes.

Child Tax Credit Increases - The Child Tax Credit increases to $1,000 per child (an increase from $600 in 2002). The increase is effective for tax years 2003 and 2004. The Child Tax Credit is scheduled to return to $700 in 2005 with increases to $1,000 by 2010. The income level phaseout remain at $75,000 for singles, $110,000 for joint filers and $55,000 for married couples filing separately.

Advance Payment of Child Tax Credit - Due to the immediate increase in the Child Tax Credit, an advance payment of the 2003 Child Tax Credit -up to $400 per child- will be disbursed to all eligible taxpayers beginning with three principal mailings on July 25th, August 1st, and August 8th for taxpayers who filed their 2002 tax return by April 15, 2003. The IRS will send notices to eligible taxpayers beginning on July 23rd, informing them of their advance payment amount. Some taxpayers with children are not eligible for the advance payment. They include taxpayers who filed Form 1040EZ, which doesn't provide for claiming dependents or the Child Tax Credit, taxpayers who had income that exceeded certain limits, taxpayers whose only children were born before 1987, taxpayers whose only child was born in 2003, or taxpayers whose Child Tax Credit and Additional Child Tax Credit for 2002 totaled less than $600 for each qualifying child because of the tax liability and earned income limitations. Taxpayers who qualify for the Child Tax Credit in 2003 but not in 2002 will be able to claim a tax credit of up to $1,000 on their 2003 tax return.

Marriage Penalty Relief - For 2003 and 2004 the standard deduction for married taxpayers filing jointly increases to twice the standard deduction for single taxpayers. The 2003 standard deduction for married couples filing jointly increased by $1,550 to $9,500. In addition to the standard deduction increase, the 15 percent tax bracket for joint filers expands to twice the size of the 15 percent bracket for single filers. After 2004, the standard deduction and 15 percent tax brackets for joint filers are reduced to 180 percent of the single taxpayer equivalents.

Alternative Minimum Tax Relief - While the Alternative Minimum Tax rates are not reduced, the new law does increase the AMT exemption for joint filers and surviving spouses to $58,000 and $40,250 for unmarried filers for tax years 2003 and 2004.

Extended Bonus Depreciation - The additional first-year depreciation deduction increases from 30% to 50% for qualified property acquired after May 5, 2003 and before January 1, 2005. The first year depreciation allowance on new luxury autos used for business has increased to $7,650. Elections can be made to claim the 30% bonus first-year depreciation instead of the 50% or not to claim the additional depreciation.

Increased Section 179 Expensing - The maximum amount that can be deducted under Internal Revenue Code Section 179 has been increased from $25,000 to $100,000. The phaseout threshold also increased from $200,000 to $400,000. Qualifying property placed in service in 2003, 2004 and 2005, will qualify for the increased amounts. The amounts will be indexed for inflation in 2004 and 2005. The Tax Relief Act of 2003 also includes a provision for off-the-shelf computer software placed in service beginning in 2003, 2004, or 2005 as qualifying property.

Effective tax planning requires a year-round effort each year, especially as your overall financial position changes. If you wish to discuss the Tax Relief Act of 2003 and the provisions affecting you as well as the available tax strategies that would be appropriate to minimize your tax liability and maximize your tax savings, please give us a call at (586) 977-7930 to set up an appointment.