Oliver, Rainey & Wojtek, L.L.P.

Fall 2003

In This Issue:

Congress Approves $350 Billion Tax-Cut Package
Child Tax Credit
Staff Updates

Congress Approves $350 Billion Tax-Cut Package . . . .

Immediate Relief Available
Designated as the third largest tax cut in U.S. history, the Jobs and Growth Tax Relief Reconciliation Act of 2003, which was recently approved by the House and the Senate and signed into law by the President on May 28, gives immediate tax relief to individuals and small businesses. Although President Bush did not get everything he asked for, Congress did pass a relief package that has already saved you money because of its many retroactive provisions.

The new law tracks many proposals including a valuable capital gains tax reduction which was added at the last moment, that will significantly impact a broad segment of the population. And, since the majority of tax breaks are retroactive to January 1, 2003, and it lowers marginal tax rates across the board, it will mean extra disposable income for all taxpayers in 2003.

Small businesses will get a tremendous push with the new law's quadrupling of the expensing deduction, almost doubling bonus first-year depreciation, and drastically lowering the amount of tax paid on taxable income through significant rate deductions.

In addition, the law lightens the tax burden on investors by lowering the tax rates on earnings from investments (including stock dividends) and also provides significant tax incentives designated to help businesses grow and thrive.

We have summarized the major provisions of which you should be aware of and tried to explain as clearly and concisely as possible in the following pages. Please give us a call and let us help you if you have any questions.

Reduced capital gains tax rate Accelerated marginal rate cuts
Reduced dividend tax rate Extended bonus depreciation
Increased child tax credit Marriage penalty relief
Enhanced small business expensing

Individual Marginal Rates
One of the major accomplishments of the new tax law is its across-the-board reduction of tax rates. Retroactive to January 1, 2003, rates in the top four brackets decrease by 2% or more. This is an acceleration of changes originally scheduled by the Tax Act of 2001 to take place in 2004 and 2006.

Old Rates	New Rates
38.6%	35%
35%	33%
30%	28%
27%	25%
15%	No Change
10%	No Change

Rates in the 10% and 15% brackets did not change. However, the upper end of the 10% bracket increases from $6,000 to $7,000 for single filers and from $12,000 to $14,000 for joint filers. This change applies only for 2003 and 2004. The lower thresholds go back into effect in 2005.

Under the new law, the tax cuts are retroactive to January 1, 2003 and all are subject to the "sunset" provisions under which rates revert to 15, 28, 31, 36 and 39.6 percent after 2010.

Capital Gains
Under the new law, the maximum net capital gains tax rate immediately falls five percentage points from 20 to 15 percent. The current 10 percent capital gains rate for lower-income taxpayers falls to five percent. These new laws are effective for sales and exchanges (and payments received) on or after May 6, 2003 and through December 31, 2007 (with the 15 percent rate continuing unchanged in 2008 as well). The lower rates apply for both regular tax and alternative minimum tax purposes.

Dividends
Dividend income received by an individual shareholder from a domestic or qualified foreign corporation will be taxed at a maximum rate of 15 percent for most taxpayers. Lower income individuals will pay tax on their dividends at a new rate of five percent. This special tax treatment is temporary but it is also retroactive. The 15 percent rate is effective for dividends received in tax years beginning after 2002. It terminates on December 31, 2008. The five percent rate terminates on December 31, 2007 and falls to zero percent for 2008. The old rates return in 2009.

Long-Term

Capital Gains

For taxpayers in the 15% or lower marginal bracket,* capital gains are taxed as a maximum rate of:

10% for period before May 6, 2003

8% for qualified five-year gain for period before May 6, 2003

5% for period May 6, 2003 and later

For taxpayers in the 25% or greater marginal tax bracket, capital gains are taxed a maximum rate of:

20% for period before May 6, 2003

15% for period May 6, 2003 and later

Short-Term

Capital Gains

Capital gains are taxed at the same rate as ordinary income tax

Dividends

Dividends are taxed as net capital gains

* To the extent taxable income remains in 15% bracket. Capital gains in excess of 15% bracket are taxed at a 15% maximum.

These rates mentioned do not affect dividends or capital gains received from tax-free funds such as traditional IRAs or 401(k) plans. Withdrawals from these plans are taxed as ordinary income rates regardless of the source of the earnings and may be subject to penalties if removed from the tax plan prior to retirement.

Business and Corporate Relief
The Treasury estimates that small businesses will be a primary beneficiary of the new law, with dramatically-enhanced expenses, additional first-year "bonus" depreciation, and the income tax rate cuts all adding up to substantial savings. Other businesses, however, also share in some of the benefits. Although a dollar limitation is placed on equipment purchases entitled to expensing, bonus depreciation carries no such limitation.

Small Business Expensing
Small businesses can also take an immediate write-off under Code Section 179, up to $100,000 of equipment purchases each year. (The previous limit on this expensing option was $25,000). This benefit begins to phase out when total purchases in any year exceed $400,000. Property placed in service in tax years beginning in 2003, 2004 and 2005 will be eligible for the special treatment.

Bonus Depreciation
The new law also increases and extends the bonus depreciation that was introduced in 2002. Businesses can now claim a first-year bonus depreciation of 50% of the cost of most new equipment acquired after May 5, 2003 and before January 1, 2005. The previous law allowed 30% of the bonus depreciation, which can still be taken for new business equipment purchased between September 11, 2001 and May 6, 2003.

Please let us know if you have any questions regarding these rate limits or new depreciation rules.

Marriage Penalty

The standard deduction immediately doubles for married couples to twice the amount of the standard deduction for single taxpayers. However, the relief is temporary - only for two years, 2003 and 2004. In 2005, the standard deduction for married taxpayers will fall to 180 percent of the standard deduction for single taxpayers and then gradually rise to double the amount by 2009.

Before the new tax law, the 2003 standard deductions were $4,750 for single taxpayers; $7,950 for married couples filling jointly; $7,000 for heads of households; and $3,975 for married couples filing separately. Now, the standard deduction for single taxpayers remains the same, but the deduction for married couples filing jointly jumps to $9,500. The deduction for married couples filing separately is eliminated during this two-year period. A married person filing separately will claim the same deduction as a single taxpayer.

The new law also expands the 15 percent tax bracket for joint filers to twice the width of the same bracket for single filers. Relief is also temporary- effective for two years, 2003 and 2004.

Child Tax Credit
Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the child tax credit was scheduled to rise to $1,000 by 2010. The new law immediately boosts the credit from $600 to $1,000. The increase is temporary for years 2003 and 2004. In 2005, the child tax credit is scheduled to fall to $700, but increases back to $1,000 by 2010 under the old schedule.

Most taxpayers were able to see immediate benefit with "advance payment" checks which were recently mailed to over 25 million taxpayers this summer. If you have a child that was born this year, you should not expect a check. However, you can claim the credit on your 2003 tax return. Higher-income taxpayers may not qualify for the full credit. Phase out begins when adjusted gross income reaches $110,000 for joint filers or $75,000 for singles or heads of household.

2003

Modified Adjusted

Gross Income

(MAGI)

Tax Credit for

Each Child Younger

Than the Age of 17

Married/Joint

$0 - $110,000

$1,000

Individual

$0 - $ 75,000

$1,000

Taxpayers claiming the child tax credit are those with a qualifying child who :

Is claimed as your dependent
Was under the age 17 at the end of 2002
Is your son, daughter, adopted child, descendent of a child, stepchild, or eligible foster child, and is a U.S. citizen or resident

Staff Updates.......

Congratulations to Staff Accountants Cheri Gray and Bill Taylor on completing the examination and licensing requirements to become Certified Public Accountants!

Also to Chris Smith on his May 2003 graduation from Angelo State University, receiving bachelors and masters degrees in business administration. And if that wasn't enough, wedding bells were ringing as he and his fiancee Lora Braden were married June 14th. Congratulations to Chris and Lora. We welcome her to the extended ORW family.

Staff member Michelle and Phillip Perkey are proud to announce the addition of their newest family member, Caleb Wade Perkey. Caleb was born on June 9th, weighing 7 lbs. 12½ ozs. and was 21 inches long. Caleb was welcomed by his older brother Jordon.

We also welcome Beverly Nichole Stout. She was born on December 19th and her parents Kevin and Tammy and big sister Catti couldn't be prouder. "Nikki" weighed 7 lbs. 3 ozs. and was 21 inches long.

Congratulations go to Nancy Switzer, Tammy Stout, and Cecily Green on their recent promotions to Senior Bookkeepers. Way to go ladies!