A Less Taxing Bite on Small Business: These Strategies Can Help Reduce Uncle Sam's Cut of Your Venture. (Management Advice)
McCrea, Bridget, Black Enterprise
With a new tax year upon us, it's again time for small business re-educate themselves on tax changes for 2002 and vantage of strategies that can affect their returns.
The most significant changes in the 2002 tax year for small businesses are an increase in the maximum contribution to retirement plans, a section 179 depreciation increase to $24,000 for equipment and property purchases, and a special depreciation allowance for companies that purchased equipment and property after September 10, 2001. Small businesses can also write off 70% of their health insurance costs this year, compared with 60% for tax year 2001, and benefit from an across-the-board reduction in income tax rates.
In light of these and other new developments on the tax front, here are a few strategies small business owners can employ to ease the tax burden:
* Set up a retirement account for yourself and your employees. Not only is it good for employee well-being, it is also tax-deductible. Discuss your options with a financial planner or an accountant who can steer you toward the right option, be it a traditional 401(k) plan, a savings incentive match plan for employees (SIMPLE-IRA), or a simplified employee pension (SEP-IRA). In most cases retirement plans must be set up by October of the tax year or related fiscal year, but SEP-IRAs offer flexibility for small business owners who want to beef up their deductions for the prior year. For 2002 you can set up a SEP-IRA as late as April 15, 2003, and sock away 25% of the compensation earned last year (limited to $200,000 per participant).
* Take a special depreciation allowance. This is allowed for qualified property placed in service after September 10, 2001. The allowance is an additional deduction of 30% of the property's depreciable basis. This means you can deduct $15,000 for a $45,000 piece of equipment, then depreciate the remaining $30,000 as you normally would. From there you can still elect to take the regular depreciation or the expensing option in Section 179, which for 2002 is $24,000. (The amount will rise to $25,000 in 2003.)
* Write off the company car. This year you can either elect to deduct the standard mileage rate of 36.5 cents per …
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Publication information: Article title: A Less Taxing Bite on Small Business: These Strategies Can Help Reduce Uncle Sam's Cut of Your Venture. (Management Advice). Contributors: McCrea, Bridget - Author. Magazine title: Black Enterprise. Volume: 33. Issue: 6 Publication date: January 2003. Page number: 38. © 2007 Earl G. Graves Publishing Co., Inc. COPYRIGHT 2003 Gale Group.
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