This Tax Cut May Pay Dividends

How The Bush Stimulus Plan Could Impact Your Wallet

worth of equipment purchases in 2003 as opposed to depreciating the outlays over several years. The Bush plan would boost that allowance to $75,000—a proposal generally supported by Republicans and Democrats. “If you need the equipment, buy it,” says Grant. “However, don’t incur an obligation to purchase unnecessary equipment just to get a tax break.”

The new proposal would exempt dividends from personal income tax. That is, an investor could buy 100 shares of a company, collect a $25 quarterly dividend, and pay no tax on that income. “Such a proposal, if passed, would make dividend-paying stocks more attractive,” says Bill Wixon, a financial planner in Plymouth, Minnesota, and a member of the Financial Planning Association of Minnesota, a 900-member nonprofit organization. “The same is true for mutual funds that hold dividend-paying stocks. Nevertheless, I wouldn’t rush out to buy dividend-paying stocks or stock funds that you wouldn’t buy otherwise. Wait and see what legislation actually is passed.”

For now, Wixon cautions investors about putting money into municipal bonds or muni funds. “They’ll be hurt by this type of legislation,” he says. “Dividend-paying stocks may offer comparable yields, tax-free, as well as appreciation potential.”

But should you put dividend-paying stocks and stock funds inside a tax-deferred retirement plan, such as an IRA or a 401(k)? Since withdrawals from such plans are fully taxed, you might wind up converting tax-free dividends into taxable income.

If passed, the new tax laws may provide you with a bevy of breaks. However, as you engage in your tax planning, whether you’re a professional or an entrepreneur, seek out advice from top-flight accountants, tax attorneys, and financial planners. With the dawning of this new era of taxation, you need not, and should not, go it alone.

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