By Rhonda Abrams
Gannett News Service
Each December, I have the unpleasant duty of reminding readers that in just a few short months, tax time will return.
You need to assess whether your business was affected by tax laws passed by Congress last summer and how your business fared during the economic slowdown.
For instance, in most years the golden rule of end-of-year tax planning is "defer income, accelerate expenses." But if you've had a bad year, and you expect next year to be better, you may want to do just the reverse. You might, for instance, want to encourage clients to pre-pay for January products or services (perhaps offer a slight discount as an enticement) and push hard to collect overdue invoices before Dec. 31.
The most important tax-law change is the reduction in the personal income tax bracket. Few others, if any, will affect small businesses directly unless you make large capital expenditures of depreciable assets or you're selling your company.
Here are the major tax changes to keep in mind:
The top individual income tax bracket has been lowered from 38.6 percent to 35 percent.
Capital gains (and losses) rates have been reduced to a maximum of 15 percent (down from 20 percent) for taxpayers in higher income brackets and from 10 percent to 5 percent for taxpayers in the lowest two tax brackets. This is effective for capital gains after May 5, 2003.
The Section 179 "expensing" amount has increased from $25,000 to $100,000.
So, what can you do now to lower your business taxes?
Buy a van or truck. Realistically, the biggest depreciable asset purchased by most small companies is a business vehicle. Prior to this year, "nonpersonal" business trucks or vans had to weigh at least 6,000 pounds to qualify for the Section 179 expensing option (the so-called "SUV tax break"). Now, qualified nonpersonal utility vehicles - regardless of weight - placed in service after July 7, 2003, can be completely deducted in 2003 - as long as your total expensing doesn't exceed $100,000.
Structure the sale of your business carefully. Selling stock qualifies as capital gains (15 percent), while selling assets is treated as ordinary income (up to 35 percent).
So if you're in selling your business, try to structure the purchase as a sale of stock rather than a sale of assets.
Set up a Dependent Care Assistance Program. By setting up such a program, I can reimburse my employees up to $5,000 in child-care expenses tax-free. They don't pay income taxes on the reimbursement, and I don't pay payroll taxes.
Ask your accountant if you should put a plan in place before year's end.
Rhonda Abrams is the author of "The Successful Business Plan: Secrets & Strategies" and president of The Planning Shop, publishers of books and other tools for business plans. Register for Rhonda's free business planning newsletter at www.PlanningShop.com.
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