September 30, 2003
Small Firm Expensing Changes
The cost of off the shelf computer software can be expensed for years 2003 through 2005 for firms that put less than $400,000 of assets in use in a year and can deduct up to $100,000 instead of depreciating the asset. Under previous law, the purchase had to be written off over three years.
Heavy SUVs Get Tax Break
As much as $100,000 of the cost of a heavy SUV can be expensed for 2003 as a result of the tax bill’s quadrupling of the old $25,000 limit. To qualify, the business SUV must be put into use this year and have a loaded gross vehicle weight rating of more than 6,000 pounds.
Signs of Dividend Increases Appear
In the most recent tax bill Congress reduced the tax rate on dividends to 15%. We are already beginning to see some evidence that this move is having an effect on corporate thinking. Citigroup increased its payout ratio from the low 20s to the low 40s, raising its dividend by 75%. Wachovia Bank posted a 21% increase in its dividends reflecting an increase in its payout rates.
With dividends now subject to only a 15% tax rate they have become increasingly attractive. Dr. Robert Goodman of Putnam Investments says twenty years ago the average payout ratio was 50%, today it is about 30%. He believes that shareholders are now demanding to share in some of the earnings, not in the future but in the present.
We believe this may make dividend paying stocks more attractive than the yield on fixed income investments and therefore stimulate the stock market to rise because of the increase in dividend payouts. Dr. Robert Goodman www.putnam.com/commentary 7/21/03
IRS Grants Relief Due to Blackout
The IRS announced various types of tax relief for victims of the power blackout that occurred in the Northeastern US beginning on August 14, 2003 and lasting over 24 hours in many parts of New York City and elsewhere.
The relief is particularly important for individual filers who filed automatic extensions and were planning to file by the August 15 extended due date but were unable to do so because of the power failure.
The relief applies to those individuals and businesses located in the blackout area as well as filers who were located outside the affected areas who were unable to obtain the information necessary for filing from service providers, banks or insurance companies whose operations were directly affected by the blackout.
The IRS will consider as timely, any tax returns or payments due from Friday, August 15, 2003 through Friday, August 22, 2003. However, the IRS is not allowed to abate interest on any overdue taxes during this period.
Individuals who needed more time to file than this relief granted should have filed Form 2688 in order to seek an additional 2 month extension.
The relief did not extend the time for making employment and excise tax deposits. However, the IRS will waive penalties on these deposits due during the relief period for affected taxpayers due to reasonable cause if the deposits were made by August 22, 2003. IR 2003-100 8/18/03
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