The Top 8 Planning Tips from the New Tax Law. (Feature: Special Advertising Section)

Article excerpt

With $330 billion in tax cuts, one would expect the "Jobs and Growth Tax Relief Reconciliation Act of 2003" to be hundreds, if not thousands of pages in length, with inordinate complexity and a myriad of planning opportunities and pitfalls. However, this Act comes in at about 20 pages, and several of its more expensive provisions do not have much planning potential, like a 2% rate cut, or a child credit or marriage penalty relief for which you either qualify or you don't.

But there are still a number of provisions that provide some real planning opportunities or that could cause problems for practitioners, for example:

1. Generally, clients would be advised to invest for capital gains to take advantage of the deferral and preferential rates. The Act taxes both types of income at the same rate. As for the deferral, it becomes less compelling at lower rates, and with rates this low, one might choose to take gains currently in case there is a change in the rates with a change in politics, the economy, or other circumstances.

2. The reduction in the tax rate on dividends and capital gains might cause one to re-think efforts to shelter long-term investments from tax within a Roth IRA or a tax sheltered annuity to take advantage of tax-free appreciation. These are taxed at very low rates outside the IRA, and the taxpayer has greater freedom to choose investments and greater access to capital.

3. Investment in tax exempt bonds will be much less attractive as after-tax yields on taxable investments increase. …