Certified Public Accountants

We are a member of the Ohio Society of CPA's.

KESEL & WEST

CERTIFIED PUBLIC ACCOUNTANTS

(614) 846-1217

As we write this letter it is mid-November, 2003.  As always, there is a lot of uncertainty and concern about taxes as we head into a new year (2004).  We hope this letter gives you some ideas and helpful information you can use as you begin to gather your tax related information.

For 2003, a dependency exemption is worth $3,050 in deductions; up from $3,000 in 2002.

The Standard Deduction for 2003 is $9,500 for couples filing joint returns, $4,750 if they file separately, $7,000 for heads of households, and $4,750 for single taxpayers.

The additional standard deduction amount for taxpayers age 65 and over is $1,150; it’s $2,300 if the taxpayer is over 65 and also blind.

The standard deduction for Dependents in 2003 may not exceed the greater of $750 or the dependent’s “earned income” from jobs plus $250 (but not more than the regular standard deduction amount, which is $4,750 in 2003).

The Standard Mileage Rate for 2003 is $0.360 for business use and $0.375 in 2004.  The charity mileage rates remain the same at $.14 for both 2003 and 2004, but the rate for medical mileage is $0.12 for 2003 and increases to $0.14 for 2004.

The Social Security wage base was $87,000 for 2003, and is $87,900 for 2004, an increase of $900 over 2003.  There is no change in the FICA rate of 6.2% on employers and employees.  The Medicare tax rate remains 1.45% and applies to all wages.  Self-employed people will pay 15.3% up to 87,900 and 2.9% on amounts above that in 2004.

People receiving social security under age 65 can earn $11,520 in 2003 and $11,640 in 2004.  For each $2 earned above that amount, $1 of benefits is lost.  People over 65 have no earnings limitations.  The Normal Retirement Age for social security will be age 65 and ten months for people turning 62 in 2004.  Earnings required for a Quarter of Coverage in 2004 is $900, up from $890 in 2003.  Maximum Retirement Social Security Benefit for workers retiring after March 2004 is $1,825 per month.

Dependent’s Qualification.  To be claimed as dependent, certain tests must be met.  These include:

            Relationship:  A Dependent must be related or have lived as a family member throughout

           the year.

           Citizen/Resident:  The person must be a citizen or resident alien (or resident of Mexico,

           Canada) or adopted.

           Income:  The person’s gross income must be less than $3,050.  Exception: child under 19

           at the end of year or under 24 and a student.

           Support:  You must have provided over ½ of the support for the year.  Exception:

           divorced/separated during the year and for persons supported by two or more taxpayers.

           Exemption for Married Child: a parent may claim a married child as a dependent only if

           the child does not file a joint return and is otherwise qualified as a dependent.  Once this

           test is met, a parent may claim a married child and his/her spouse as dependent, even

           though he/she files a joint return.

Child Tax Credit:  Amount per child is $1,000 in 2003.  The dependent must be under age 17, and be a son, daughter, stepchild, foster child, grandchild, or adopted, citizen or resident alien.  AGI requirements include, income must be below phase out amount starting point of $110,000 (Married), $75,000 (Single), $55,000 (Married filing separate).  The credit is reduced by $50 for each $1,000 (or portion thereof) of income above the AGI amounts noted above.  This summer many taxpayers received an advance Child Tax Credit of up to $400 per child.  Taxpayers who received this advance credit must subtract this amount in figuring their 2003 credit.

Child & Dependent Care Credit:  The dependent child must be under age 13; a disabled dependent or spouse.  Maximum expenses $2,400 ($4,800 if two or more qualifying persons).  Expenses eligible for credit are reduced by amount excluded from income from an employer provided dependent care assistance program.  If the child turned 13 in 2003, you can still claim the credit for expenses incurred prior to his or her 13^th birthday.

Flexible Spending Arrangement:  Employees who take advantage of Flexible Spending Arrangement (FSA) provided by their employer can claim amounts that exceed the FSA amount for the Child & Dependent care credit.

Education Credits & Benefits:  Hope Credit provides a maximum allowance credit of $1,500 per student for each of the first two years of postsecondary education.  The Lifetime Learning Credit provides a maximum allowable credit of $1,000 per student or 20% of expenses, whichever is less.  Covered expenses include tuition and fees, not room and board.

Student Loan Deduction:  Limit on interest eligible for the deduction in 2003 is $2,500 and the phase out ranges for the deduction is $100,000 for filing status Married Filing Jointly, and for Singles $50,000.

Educational Assistance:  The exemption for employer provided educational assistance has become permanent.  In 2003 both undergraduate and graduate courses qualify for an exemption amount up to $5,250.

Offer In Compromise Program: Ohio has introduced a new offer-in-compromise program designed to encourage at least partial payment of outstanding taxes.

Tax Rules for Collectibles: The IRS has special rules for hobby collectibles, such as antiques, photographs, art works, coins, and stamps.  Long-term gains on items held more than a year are taxed at up to 28% instead of the normal 15%.  Expenses are deductible against hobby income, such as that earned from sales of items in the collection, but a net loss cannot be deducted.

Gain is calculated with respect to your “basis” in an item – its cost to you for the tax purposes.  If you bought the item, its basis is the price you paid for it plus any other amounts spent on restoring it.  When an item in you collection was received by gift, basis generally carries over from the gift maker to the gift recipient.  You must, however, have records proving it or risk incurring an increased tax bill when you sell it.  And if you make a gift of items in your collection to someone else, supply proof of your basis with the gift.  The basis of collectibles received by inheritance is the market value at the time of the death of the prior owner.  So keep in your files a market quotes or appraisal proving the value of inherited items as of the death of the prior owner.

Individual Retirement Accounts: For 2003 the annual contribution limit for both traditional and ROTH IRA’s is $3,000.  Workers over aged 50 will be able to contribute $3,500.

Employee Retirement Accounts:  The employee contribution limit for 401(k)s, 403(b)s and for 457 plans for 2003 is $12,000 and for 2004 $13,000.  The contribution limit for SIMPLE plans is $8,000 for 2003 and $9,000 for 2004.  Workers over the age 50 will be able to contribute an extra $1,000 in 2003 and $1,500 more in 2004.

Defined-Contribution Plans:  For 2003 the amount that can be added to defined contribution plans (including employer and employee contributions) is 100% of compensation and the dollar limit to $40,000.  The top amount of compensation for 2003 that can be taken into account for purposes of determining contributions and benefits under a retirement plan is $200,000, but for 2004 the amounts are $41,000 and $205,000.

Gift Tax: For the 2003 tax year, taxpayers may make gifts of up to $11,000 per person and exclude the amount from the gift tax.  Those receiving the gift are not required to pay taxes on the amount received.