What's in It for Me?
Although the $1.35 trillion tax package is designed mainly to provide relief to individual taxpayers, it by no means leaves entrepreneurs out in the cold. You receive a number of benefits under the act. Here's a look at two areas:
Estate Taxes: Perhaps the biggest sigh of relief for entrepreneurs comes with the changes to the estate tax. The new law gradually raises the exclusion amount and lowers the top estate tax rate. Eventually, it repeals the tax altogether. The exclusion amount increases to $1 million for 2002 from the current $675,000. Subsequent increases raise the level to $1.5 million in 2004, $2 million in 2006 and $3.5 million in 2009.
Meanwhile, the top estate tax rate of 55 percent drops to 50 percent in 2002 and continues to decrease a percentage point each year until it reaches 45 percent by 2007. It stays there until 2010, when the estate tax is scheduled for repeal.
As the law is written, however, those provisions expire at the end of 2010. "Without congressional action to re-enact the estate tax repeal, in 2011 wealthy individuals and their advisors could find themselves suddenly catapulted back to the exclusion amounts and tax rates in effect today," says Bruno Graziano, an attorney and senior estate tax analyst for CCH Inc., a tax and business law information provider in Riverwoods, Illinois.
Retirement: Several new and expanded benefits offer more retirement planning options for entrepreneurs and their employees. For IRAs, the new law raises the maximum deductible annual contribution levels from the current $2,000 to $5,000 by 2008. In addition, $500 annual increases for inflation start in 2008.
For 401(k) plans offered by employers, the maximum contribution increases incrementally from the $10,500 limit this year to $15,000 in 2006. The law also includes a tax credit for new plans established in 2002 by owners of businesses with 100 or fewer employees. It applies to 50 percent of the first $1,000 in start-up expenses for the first three years of the plan.
While there's no question that the law provides tax relief, it also adds a significant amount of complexity to an already complex tax code. President Bush and lawmakers, say tax experts, have yet to tackle the tough job of tax simplification.
Great Falls, Virginia, writer Joan Szabo has reported on tax issues for more than 14 years.