New tax laws that could affect your 2003 returns (page 2)
By Kay Bell • Bankrate.com

6. Dividends tax at lower rates, too
The tax-law news for investors who received dividend payments is even better. Most of those earnings now are taxed at 15 percent (or 5 percent for lower-income taxpayers), rather than regular income tax rates. And the lower rate applies to dividends received during all of 2003, not just after the law went into effect.

The key to this tax break is that the dividends be qualified. In most cases, that means they must come from domestic corporations, although dividends from some foreign companies are eligible. Certain dividends from real estate investment trusts and regulated investment companies are not eligible for the lower rate. Plus, you'll have to complete a worksheet (found in your 1040 or 1040A instruction book) to figure out your taxes when you have dividends eligible for the new rate.

7. Lifetime Learning Credit doubles
While many education tax breaks are available to only younger students, the Lifetime Learning Credit can be used for undergraduate, graduate and professional degree courses for anyone. This means a qualifying course you took to improve your current job skills or to get new work could be partially paid for by the tax credit. In 2003, the qualified education expenses limit doubles to $10,000. That means you could get a maximum credit of $2,000.

8. IRA deduction phaseout range is bigger
Many taxpayers continue to fund traditional IRAs, either because they do not meet Roth account guidelines or they want the tax deduction that comes with the original IRA account. That deduction, however, is phased out at certain income limits if you also are covered by a retirement plan at work.

For 2003 taxes, more traditional-IRA holders should be eligible for at least some deduction of their contributions because the adjusted gross income limit has been raised. Now single and head-of-household filers covered by a company retirement plan can make up to $40,000 and still get a full deduction of their IRA contribution. They're allowed a partial deduction if their income falls between $40,000 and $50,000. Married couples filing joint returns can make up to $60,000 adjusted gross income and get the full deduction; a partial deduction is available when income falls between $60,000 and $70,000.

9. Health insurance help for the self-employed
If you run your own business, either as your main source of income or as a venture on the side to supplement your wages, Uncle Sam offers more help here in 2003. If, as part of your business, you paid for health care for yourself and your family, you can deduct 100 percent of those premium costs as an adjustment to your income. This is up from the 70 percent deduction previously allowed. Don't forget to count premiums paid toward long-term care policies. You get a break here, too.

But be careful in claiming this tax break if your self-employment is a sideline to a salaried job. In this case, you cannot deduct any self-employed insurance payments you make during a time when you're eligible to participate in a health plan at your main work or through your spouse's employer.

10. Military tax relief
Also in 2003, several laws were enacted to boost tax benefits for military personnel.

Soldiers who must sell a home because they are redeployed now should find it easier to reduce any capital gains they might otherwise face. Generally, when a homeowner lives in his or her personal residence two of the past five years, up to $250,000 (or $500,000 for married filers) of capital gains on the sale is tax-free. Military homeowners often find the residency rule hard to meet because of frequent reassignments and end up owing taxes. Now, the Military Family Tax Relief Act of 2003 exempts them from the two-year requirement (for up to 10 years), and lets them qualify for the full exclusion whenever they must move to fulfill service commitments.

The military relief bill also eases the tax bite on housing assistance provided by the military to compensate for a drop in home values because of base closures or restructuring. That money is no longer considered taxable income. Neither are child care or other eligible dependent care expenses provided under a military assistance program.

National Guard and Reserve personnel weren't forgotten. When these troops travel overnight for training, they now can deduct travel and lodging costs even if they don't itemize deductions when they file. This new deduction is reported directly on Form 1040, line 33, instead of Schedule A.