It's tax season, and area preparers say that may be reason to rejoice for more people than ever.
President Bush last summer pushed through Congress an inordinate amount of changes to the federal tax laws, and Lawrence tax professionals say those changes may make people more eager to file a return in 2004.
"I'd say most of it this year is good news for taxpayers," Mary Jane Moore, a preparer with Lawrence's H&R; Block Premium, said of the changes.
Perhaps the biggest change is the lowering of the four highest tax rates in the federal code. The 27 percent tax rate dropped to 25 percent, the 30 percent rate dropped to 28 percent, the 35 percent rate dropped to 33 percent, and the 38.6 percent rate dropped to 35 percent. The amount of money you can earn and still qualify for the 10 percent and 15 percent tax brackets also was increased in 2003.
All of the changes spell the most loved word in the tax code: R-E-F-U-N-D.
Randy Renfro, a partner at the Lawrence accounting firm Roark & Associates, said the lower tax rates made a refund more likely. Also, the way the tax cuts were implemented increases the chances for a happy tax season.
The law changing the tax rates was passed in late May, but legislators made the cuts retroactive to Jan. 1. Renfro said that made it likely that many people for the first half of 2003 were having too much money withheld from their paychecks. Employers were given a new tax table during the summer and likely adjusted the amount of money withheld from checks for the second half of the year.
Renfro said if overpayments were made during the first half of the year, that increased the likelihood that you'll be due a refund. That's why Renfro expects more people to file their taxes earlier this year, so they can get the money in their hands and spend it, which is exactly what the tax cuts were designed to do.
"We'll see a lot more refunds this year because the federal government is hoping people get a refund check and go out and spend it on durable goods and boost the economy," Renfro said.
One item that hasn't changed is April 15. It is still the day you want to circle on your calendar as the last day you can file your tax return without a penalty.
Another date to keep in mind is Jan. 31. Employers are required to send out W-2 forms, which show the income you earned in a year, by the end of January. Banks, mutual funds and other businesses that owe you important tax documents also must meet that deadline.
"I always tell everyone to get a file folder and put all those documents in it as soon as they come in the mail," Moore said. "That's the best way to keep them in one place."
Renfro said you may want to make an early appointment with a tax preparer if you've had any major changes in your life during 2003. For example, he said any large sales of property or stock, changes in retirement status, changes in marital status or the birth of a child may require extra tax planning time.
Some of the other changes in the tax law also may require you do a little extra planning this tax season. Here's a quick look at some of the other important changes:
- Capital gains: There's good news for people selling stocks and other investments subject to capital gains taxes. Those tax rates have gone down as well. The 10 percent capital gains tax has been reduced to 5 percent, and the 20 percent capital gains tax has been cut to 15 percent.
- Dividends: Owners of stocks that pay dividends also are smiling. Qualified dividends will now be taxed at the capital gains rate instead of the ordinary tax rate. That could be a significant savings. For example, if you are in the 33 percent tax bracket, in previous years, you would pay a 33 percent tax on your dividend income. This year, that's likely to fall to either 10 percent or 15 percent.
- Standard deduction: Married couples got a piece of the tax cuts as well. The standard deduction for a married couple filing jointly was increased from $7,850 to $9,500. The increase pretty much eliminates the "marriage penalty" in the tax code. The "marriage penalty" basically referred to the fact that the standard deduction for two single people were significantly larger than the standard deduction for two married people.
- Child credits: For parents who have qualifying incomes, the amount they're able to deduct for each child under the child tax credit program has increased from $600 to $1,000. This change is the reason some parents received a check for several hundred dollars from the government last summer. If you received one of those checks, make sure your tax preparer knows it because it could affect how much you'll receive this year.
- Education expenses: The amount of money you can deduct as part of the Lifetime Learning Credit also has increased. Taxpayers now can deduct 20 percent of $10,000 worth of education expenses instead of 20 percent of $5,000 worth of education costs.