Federal Tax Law Changes for 2003
The standard mileage rate for all business use of a car in 2002 is 36.5 cents per mile (reduced to 36 cents for 2003). For mileage incurred while performing charitable work, the rate is 14 cents per mile.

	Student loan interest deduction has increased to $2,500 for qualifying taxpayers.
	The deduction for health insurance premiums for self-employed individuals increases to 70% for 2002, 100% in 2003.
	Certain hybrid gas-electric cars have become eligible for a $2,000 clean-burning fuel deduction. Currently certified are the 2001, 2002 and 2003 Toyota Prius and the 2003 Honda Civic Hybrid.
	The maximum Code Sec. 179 deduction is $24,000 for 2002, $25,000 in 2003.
	The child tax credit is $600.
	The maximum IRA deduction is $3,000, plus $500 for those 50 years and older

And The There's California!
For 2002 and 2003, net operating loss carryovers have been suspended.

The Teacher retention credit has been suspended for 2002.

Starting in January 2003, people buying California real estate must withhold 3-1/3 percent of the sales price and send it to the Franchise Tax Board. The penalty for not complying is $500, or 10 percent of the withholding amount, whichever is greater. There are some exceptions. Withholding is not required if the total sales price is $100,000 or less, for principal residences, for sales resulting in a loss, and for like kind exchanges. Here's how it will work: The amount withheld will be reported as withholding tax on that year's California income tax. The California income tax for that year will then be offset by this amount. If you paid too much, you will receive a refund. If not enough was paid, the additional amount will be due at that time.

Payroll Taxes
FICA Tax Rate | Effective for all payrolls paid after 1/1/03, the social security withholding rate and the employer tax rate are 7.65% on wages up to a limit of $87,000 per employee. Wages in excess of $87,000 will be taxed at 1.45% for employers and employees.

SDI Withholding Rate | The employee tax rate for 2003 is 0.9% of wages to a maximum wage amount of $56,916 per employee for a maximum contribution of $512.24.

FUTA Tax Rate | The FUTA wage base per employee remains at $7,000 and the tax rate is 0.8%.

Quarterly Payroll Tax Reporting | Form 941 (Federal) for the year ended 12/31/02 are due by 1/31/03. If we do not already prepare your quarterly payroll tax returns and you would like our assistance in preparing these returns, please call us.

Annual Payroll & Wage Reporting | Form 940 (Federal FUTA tax) and W-2's for employees must be completed by 1/31/03. If we prepare your quarterly payroll tax returns, we will automatically prepare these forms as well. If you would like assistance in preparing these returns, please call us.

Annual Information Returns - Form 1099
Individuals, partnerships, corporations, or other organizations engaged in a trade or business are to file information returns (Forms 1099). These forms are required to be sent to payees by 1/31/03.

What payments are reported on Form 1099?

*Payments of $10 or more, relating to interest, stock dividends or distributions, royalties, unemployment compensation, state tax refunds, or original issue discount.

*Payments of $600 or more, for non-employee services, rent, providers of health and medical services, or liquidation distributions.

*Payments (regardless of the amount) for acquisition or abandonment of property secured for debt, broker or barter transactions, pension proceeds, proceeds from the sale or exchange of real estate, or distributions from an IRA are reportable.

*Payments made to corporations are generally not reportable. Exceptions: If, in the course of your trade or business, you paid attorney fees or gross proceeds to an attorney of $600 or more, it is reportable. Payments for medical and health services are also reportable.

*Banks and other businesses administering escrow accounts, including construction accounts, will be required to issue 1099-MISC for payments made on construction loans made after December 31, 1993.

*Forms W-3 and 1096 - These forms are all used for submitting appropriate copies of the various types of informational returns to the Internal Revenue Service. These are all due by 02/28/02.

There are severe penalties for failure to file any of these returns, as well as substantial penalties for incorrect filings. We urge you to comply with these requirements and, as always, we are available to assist you in any way to comply with the requirements.

Estate Taxes
The estate tax exemption remains at $1 million for 2003. It will increase to $1.5 million for 2004 and 2005, $2 million for 2006 through 2008 and $3.5 million for 2009. As the law currently stands, the estate tax is scheduled to be repealed in 2010 and then re-instated in 2011 with a $1 million exemption. Therefore, to be sure to avoid the estate tax, you should be sure to die in 2010!!!