Taxpayers Could Soon Feel The Benefit Of Bush Tax Cuts

by Mike Godfrey, Tax-News.com, Washington

29 May 2003

When the $350 billion tax cut package, due to be signed by President Bush this week, passes into law, American taxpayers can expect to see results in the form of larger pay packets from the beginning of July, according to a CBS report.

The retroactive aspects of the tax cuts will also mean that the IRS will owe many thousands of taxpayers extra money in the form of refunds, as many taxes will also apply to the first half of the year.

However, taxpayers keen to claim this refund at the earliest opportunity should exercise caution, tax experts have warned, as any miscalculations on their part may lead to penalties being imposed.

Jackie Perlman, a senior tax analyst for H&R Block, explained that there are many factors which must be weighed up when taxpayers are calculating their exemption levels. She went on to cite the anticipated advance on the child tax credit, increased to $1,000 from $600 per child, and the reduced dividend tax rate of 15% as examples, and explained that these will need to be balanced against any prospective increases in salary.

"Your decreased withholding and your increased child tax credit are going to take care of a lot of the goodies due you next April," Perlman told CBS News. "If you also tinker with your exemptions, you could be underwithholding at that point and find you have an unpleasant surprise next year," she warned.

First time homebuyers will also have to take great care when calculating their exemptions according to John W. Roth, a tax analyst and writer with Chicago based tax publisher CCH.

"Quite often when people take out a mortgage for the first time, they can go in and increase the number of exemptions on the withholding because they know the interest they'll be paying for the mortgage will lower their tax liability more so than they would have before the mortgage interest," Roth observed, continuing: "That way they have money in their pocket during the tax year rather than waiting for a refund."

However, for small businesses which estimate their tax bills in advance, it could well be in their interest to make adjustments, as many are likely to be facing a reduced tax bill in 2004. "If you do pay estimated taxes, you do need to rethink a little what you're going to pay because you may very well have a lower tax bill next year," Perlman advised.

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