What a Relief!
New tax laws mean more money stays in your business.
The tax picture for your business is brighter this year, thanks to the Job Creation and Worker Assistance Act of 2002.
One of the biggest benefits the new law offers is a temporary provision that allows companies to immediately deduct an additional 30 percent of the cost of most new equipment. Under the law, qualified property must be purchased after September 10, 2001, and before September 11, 2004, and must be placed in service on or after September 11, 2001, and before January 1, 2005.
The law is especially beneficial to entrepreneurs because they can use the extra depreciation deduction in addition to the small-business expensing election. Keep in mind that real estate generally won't qualify for the depreciation bonus.
Another plus for businesses is a provision extending the period in which a company can carry back losses to offset its income tax liability from two to five years. To be eligible for the extended carry-back period, the losses must have taken place in tax years ending in 2001 and 2002. The law also allows a company's net operating loss deduction to trim its alternative minimum taxable income up to 100 percent.
If you have a net operating loss for 2002 but it would be more advantageous for your business to carry it back just two years rather than five, you must make the IRS aware of this or the loss will automatically be carried back for five years, says Paul Gada, tax analyst with CCH Business Owner's Toolkit, a division of Riverwoods, Illinois, tax and business law information provider CCH Inc.
The new law also extended some expiring tax credits. Check with your accountant to see if you qualify for any of these. Those most likely to affect entrepreneurs include the work-opportunity credit, the welfare-to-work credit, and medical savings accounts.
Wire your filing to the agency and avoid all the painstaking pencilwork.
The federal government wants the electronic filing of tax returns to grow. The Bush Administration has set a goal of providing a free-filing option for all taxpayers by 2004. As part of this effort, the Treasury Department and Office of Management and Budget recently announced a new program with sellers of electronic tax-preparation services. It will allow about 10 million more Americans to file their tax returns with the IRS for free starting in 2003.
Under the agreement, companies such as Intuit and H&R Block will work together to offer free online tax-filing services. The new free-tax-filing consortium Web page is slated to be online by December 31.
For business taxpayers, the Electronic Federal Tax Payment System (EFTPS) is available. While any business taxpayer can use EFTPS, many are required to do so. The system allows taxpayers to use the phone, personal computer software (for businesses only) or the Internet to initiate tax payment reports to EFTPS directly.
EFTPS must be used to make deposits for Social Security, Medicare, withheld income, and excise and corporate income taxes if you deposited more than $200,000 in federal depository taxes during a calendar year. If this occurs, the IRS requires that you use EFTPS beginning with the second year succeeding that calendar year.
For example, if you first met the $200,000 threshold in 2001, you must begin using EFTPS in 2003. If you are required to use EFTPS but fail to do so, you may be subject to a 10 percent penalty. Keep in mind that once you meet the requirement to use EFTPS, you must continue using the system even if your deposits in future years drop below the threshold amount. For more info, check out www.eftps.gov to see Publication 966, Now a Full Range of Electronic Choices to Pay All Your Federal Taxes.