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The Jobs and Growth Tax Relief Reconciliation Act was designed to encourage new investment and to create jobs. To achieve those goals, the Act lowered the tax rates on capital gains and dividends, increased the Section 179 deduction, and reduced the marginal tax rates for individuals. Please be sure check back with us for frequent updates.

Individuals:

• Increase in the child tax credit to $1,000.
• Accelerated reductions in tax rates...see new tax table in our newsletter section.
• Reduction of the tax rate on qualified dividends to 15 percent.
• Reduction of long-term capital gains rates to 15 percent (5 percent for low-income taxpayers).
• Roth IRAs and regular IRAs are $4,000 for 2007.

Businesses:

• Additional first-year depreciation deductions equal to 50 percent of property basis (bonus depreciation)
• Section 179 dollar limitation increases to $100,000

Tips to Take Advantage of the Tax Relief Act During 2007

Review your withholdings.
One of the major provisions of tax legislation is the reduction of income tax rates. While your paycheck may be fatter, it's time to make sure enough is being withheld to meet your tax obligation.

Child Tax Credit Checks Increase.
If you expect to receive Child Tax Credits in 2007, look forward to a larger credit. The per child tax credit is $1000. Remember, however, that this credit is dependent on your income and you may not be eligible or only be eligible for part of the benefit.

Look into Dividend Investments.
The Tax Relief Act gives a break on taxes paid for dividends. While corporations still distribute dividends to shareholders after paying taxes on the income, the shareholders who receive these dividends now pay a top tax rate of 15% on this income (down from 38.6%.) Wage earners in the 10-15% bracket would pay only 5%. This change could come with a double benefit; not only will you be able to keep more of your dividend income, but the value of the shares you own could also go up with the increased demand for dividend producing stocks. But be careful, this dividend tax break is not permanent and reverts back to the current law after 2008.

Time to Cash in Your Capital Gains?
The lowest tax rate on dividends also applies to Capital Gains. Tthe current rate is now a maximum of 15%. So if you have a stock that has appreciated, now might be the time to sell. Especially since this tax provision is temporary and is projected to expire after 2008.

Businesses can Expense More of their Capital Purchases.
Small businesses can now expense up to $100,000 of qualified capital expenses under Section 179. This is up from $25,000. Thus, if your business is planning to invest in some equipment and you expect to have a banner year, you may wish to purchase the equipment now and use the capital expense to lower this year's taxes. The key is to make sure the asset you buy applies for the tax benefit.

Married Couples Should Have More in their Pocket.
The standard deduction for married couples is now twice that of a single person. The perceived "marriage penalty" of a standard deduction less than twice that of singles has been eliminated.

Are You Ready For The Roth 401(K) Option?

In 2001, Congress enacted IRC 402A, which permits employers to offer employees the option of treating elective deferrals to 401(k) and 403(b) plans as designated Roth contributions. The sunset requirements of the 2001 law force all provisions to expire after 2010 unless specifically extended by Congress, so this opportunity may not be available for long.

The Code will allow employees to fund their retirement by means of payroll deductions through contributions to a 401(k) or 403 (b) plan, just as before. However, if the employer so elects, employees may have the option of designating whether they want contributions to be excluded from their gross income and pay taxes on distributions as before – or, ready for this, pay taxes now and be able to receive tax- free distributions, just as they would with a Roth IRA.

Most of the rules for the new Roth 401(k) and 403(b) accounts will be the same as their traditional counterparts. The new accounts will still require employer participation, so any employee whose company does not offer the option can’t contribute. There are limits on the amount an employee may contribute: for 2007 that amount is $15,000 and will be adjusted for inflation in succeeding years. Distributions become mandatory once the participant reaches age 70 ½.

Will You Benefit?

How will you know whether a Roth plan is right for you? The first general rule is the younger the worker, the greater the benefit from using a Roth account. If you are more than 15 years from retirement, then a Roth plan should definitely be considered. Time frame is an important consideration, even if you are planning on an early retirement. So the important question is not so much how far you are from retirement, but how long until you need the distributions.

Regardless of age, anyone already contributing to a Roth IRA should participate in designated Roth contributions, particularly if Roth IRA contributions are maxed out already. Remember that designated Roth contributions might not be retained after 2010 so the window for contributions may close quickly.

Matthew R. Horowitz, C.P.A.
10015 Old Columbia Rd. Suite B-215
Columbia, Maryland 21046

(410) 312-7622
horowitzcpa@comcast.net