Navigating the Jobs and Growth Tax Relief Act of 2003

1. Navigating the Jobs and Growth Tax Relief Act of 2003 Tax Planning for 2003 and Beyond

2. Jobs and Growth Tax Relief Reconciliation Act of 2003 • Third largest tax cut in U.S. history • $350 billion in tax breaks • Benefits families, investors and small businesses

3. Sunset Provisions Affect Tax Planning • Increased child tax credit • Reduced capital gains rate • Reduced dividends tax rate

4. 2003 Tax Rates Lowered • 38.6% 35% • 35% 33% • 30% 28% • 27% 25% • 10% and 15% brackets are unchanged

5. More Income Taxed at 10% • Joint filers • 2003 $14,000 of taxable income • Single filers • 2003 $7,000 of taxable income • Head of household • 2003 $10,000 of taxable income

6. Child Tax Credit Accelerated • Maximum Credit 2003 $1,000 2004 $1,000 2005 Reverts to $700 unless Congress acts • Up to $400 child credit checks mailed summer 2003 • $600 more to come when 2003 taxes are filed

7. Child Tax Credit Accelerated • Phase-out rules apply for high-income taxpayers • Joint filers • $110,000 modified adjusted gross income • Single filers • $75,000 modified adjusted gross income

8. Marriage Penalty Relief • 2003 and 2004 • 15% bracket expanded for joint taxpayers • Joint filers $56,800 • Single filers $28,400

9. Higher Standard Deduction • 2003 and 2004 • Standard deduction increased for joint filers • Joint filers $9,500 • Single filers $4,750

10. AMT — An Extra Tax • Not indexed for inflation • May impact less affluent taxpayers • Income tax reduction may trigger AMT

11. AMT Income Exempt Amount Increases • Joint filers • 2003 — $58,000 • 2002 — $49,000 • Single filers • 2003 — $40,250 • 2002 — $35,750 • Increased exemptions to sunset in 2005

12. Investment-Related Changes • Tax rate on qualifying dividends reduced • Tax rate on long-term capital gains reduced

13. Dividend Tax Rate Reduced • 2002 — Dividends taxed as ordinary income — as high as 38.6% • 2003 — Dividends taxed at 15% (5% for those in 15% or lower tax bracket)

14. Dividend Tax Rate Reduced • 15% Dividend tax rate applies to: • Dividends from domestic corporations • Dividends from qualified foreign companies

15. Understanding Dividends • Taxed as interest at ordinary income rates • Dividends from: • Bonds • Credit union and bank savings accounts • Certificates of Deposit (CDs) • Money market funds

16. Understanding Dividends • Check with the payer or a CPA on • tax treatment of: • Preferred dividends • Mutual funds

17. Understanding Dividends • To qualify for the 15% rate, you must hold stock for more than 60 days during the 120-day period that begins 60 days before the ex-dividend date

18. Long-Term Capital Gains Tax Reduced • Applies to investments held more than a year • Tax Rate • 2003 15% (5% for 10% and 15% tax brackets) • 2002 20%

19. Long-Term Capital Gains Tax Reduced • For 2003, dual rates apply: • Tax Rate • Long-term capital gains 15% • realized after May 5, 2003 • Long-term capital gains 20% • realized before May 6, 2003 • 15% rate set to expire after December 31, 2008

20. Long-Term Capital Gains Tax Reduced • Exceptions Tax Rate • Unrecaptured section 1250 gains 25% • Collectibles (stamps, 28% • coins, baseball cards) • Certain small-business stock 28% • Short-term gains taxed at • ordinary income tax rates

21. Long-Term Capital Gains Tax Reduced • State tax treatment of capital gains may differ • Check with state tax departments

22. Financial Planning Considerations • Financial planning and investment decisions impact tax considerations

23. Tax Strategies • Shifting income to children age 14 and older • reduces family tax bill • Income up to $7,000 10% tax rate • Income of $7,000 — $28,400 15% tax rate • Children in 10% and 15% brackets pay a tax of 5% on qualified dividends and net long- term capital gains

24. Tax Strategies • Save tax dollars when you invest for • the long term • Short-term gains Ordinary tax rates — up to 35% • Long-term gains 15% (5% for 10% and 15% brackets)

25. Tax Strategies • Investment income: Pay now or pay later • Dividend yielding Dividends taxed in the year you receive them • Growth stock Tax on appreciation deferred until stock is sold

26. Retirement Planning Strategies • Retirement savings remain a good investment: • Contributions are made with pre-tax • All earnings accumulate tax-deferred • Employer matching contributions • Downside: Upon withdrawal, all investment gains are taxed at ordinary income tax rates

27. Retirement Planning Strategies • Best assets to hold in retirement accounts: • Stocks that you expect to trade rapidly • Interest-bearing accounts • Bonds and other fixed-income assets • REIT shares

28. Small Business Tax Breaks • Lower individual income tax rates impact self-employed workers, partnerships and other flow-through entities • Section 179 expensing deduction • Bonus depreciation deduction

29. Expensing Deduction • Deduct more in first year 2002 2003, 2004, and 2005 • $25,000 $100,000 • Higher limit set to sunset in 2006

30. Expensing Deduction • Buy more equipment before reaching • phase-out thresholds • 2002 2003, 2004, and 2005 • $200,000 $400,000 • Threshold reverts to $200,000 in 2006 unless Congress acts

31. Expensing Deduction • Enhanced tax break for off-the-shelf software • 2003 and beyond 100% of cost can be deducted in first year

32. Bonus Depreciation • Bonus depreciation increases for new assets • New assets acquired after May 5, 2003: 50% depreciation deduction • New assets purchased before May 6, 2003: 30% depreciation deduction

33. Maximize Small Business Tax Breaks • Combine Section 179 expensing election with 50% bonus depreciation for maximum tax benefit • Check state laws

34. Navigating the New Law • Set your goals • Don’t be afraid to zig-zag • Make the most of tax law changes • Stay on target

35. Navigating the Jobs and Growth Tax Relief Act of 2003 Tax Planning for 2003 and Beyond