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Correction to This Article
A March 7 Business article gave incorrect figures for the income ceilings for claiming the Hope and Lifetime Learning tax credits for college costs. The credit starts being reduced when a single taxpayer's income reaches $41,000 and becomes unavailable at $51,000. The phaseout range is $83,000 to $103,000 for a married couple filing jointly.

Changes Guarantee April 15 Surprises

By Albert B. Crenshaw
Washington Post Staff Writer
Sunday, March 7, 2004; Page F01

For American taxpayers, 2003 is turning out to be the year of living unpredictably.

After three years of seemingly large and certainly well-publicized tax cuts, topped off last spring by accelerated implementation of cuts enacted earlier, Americans this spring can sit down with their books and records -- and not know what to expect.

David Brooks looks through stacks of tax forms at a New York public library. Some tax credits require special forms. (Daniel Acker -- Bloomberg News)

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On the surface, it would seem that almost everyone's federal income taxes would be lower for 2003 than for 2002. And indeed, many people are paying less and getting bigger refunds this spring.

But it is also turning out that what the tax law giveth, the tax law in many cases also taketh away, so millions of Americans won't know where they stand until their returns are completed and they can look at the number at the end.

"For most people, especially this year, it'll come as a surprise. Their bottom-line tax amount will not be quite as predictable" as it has been in past years, said James A. Seidel, director of federal taxes at RIA, a tax information and software company.

Those most likely to face an unpleasant shock are people in the upper-middle- to lower-upper-income range -- roughly $75,000 to $400,000 -- especially those with big families or those who live in high-tax localities, such as the District, experts say, because they are most likely to fall prey to the alternative minimum tax. [See story, Page F9.]

"There's a dichotomy: While federal taxes are going down, state taxes are going up, and you kind of wind up where you started" in total taxes. But overall "it may get worse because of the AMT," said Jeffrey Kelson, a tax partner with accountants BDO Seidman in New York.

But those possibly facing the AMT are not the only taxpayers who may be in for a surprise. Fluctuating tax rates and deductions, along with other provisions that have been tucked away in the tax law for years, can rise up and, in some cases, bestow a nice benefit and, in others, inflict a nasty bite.

Here are some examples of the way moving parts create uncertainty:

Giveth: Tax rates on ordinary income were cut, as Congress expanded the lowest bracket and lopped two or more percentage points off rates in most brackets. Further, lawmakers cut the rates on capital gains and slashed the rates on many corporate dividends to match those on capital gains.

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