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Reducing Your Business Taxes for 1998 and Beyond
The Taxpayer Relief Act of 1997 and the IRS Restructuring
and Reform Act of 1998 promised significant savings for
individuals and businesses alike. All told, the two bills
are expected to cut taxes by more than $ 280 billion over
the next 10 years.
Some of the revised provisions that might benefit your
business this year and beyond include:
FAMILY-OWNED BUSINESS ESTATE TAX DEDUCTION
Beginning in 1998, an executor may elect to deduct up to
$675,000 of qualified farnily-owned business interests from
the gross estate. The exemption has been raised to $ 1.3
million, easing the passage of a family business from one
generation to the next. But the legislation also imposes
certain conditions for taking advantage of the deduction.
HOME-OFFICE DEDUCTION
Once seen as a sure-fire way to trigger all unwanted IRS
audit, a home office may be easier to substantiate under
the new, relaxed guidelines. A home office may qualify as
a principal place of business if it is used to conduct administrative
or management activities of the taxpayer's trade or business,
and there is no other fixed location in which such business
is conducted. Other areas worthy of exploration include
tax credits for research and development, work opportunity,
and welfare-to-work, and revised rules on net operating
loss (NOT ) carrybacks and carryforwards. Although the new
tax laws provide small businesses with important tax breaks,
some of the provisions are quite complex. To help ensure
that you make the right moves - and avoid potential missteps
- consult a tax advisor with experience in business tax
planning
DEPRECIATION OPTION
The new rules give business owners flexibility on computing
depreciation. Tangible personal property that qualifies
for the 200-percent declining balance method may instead
be depreciated using the 150-percent method over the recovery
periods applicable to the regular tax. This may be helpful
for start-LIP businesses that have operating losses in the
first few years and might benefit by taking depreciation
deductions in later years.
CHARITABLE CONTRIBUTION OF COMPUTERS
Thinking of upgrading your systems in readiness for the
millennium computer bug? Regular C corporations now have
until December 31, 1999, to donate computers and potentially
enjoy an enhanced charitable contribution deduction. The
costs of preparing for the Y2K bug may be tax deductible
as well.
1) "The Taxpayer Relief Act of 1997: Description
and Detailed Analysis," Ernst &Young, 1997; CC H Tax Briefing:
"IRS Restructuring and Reform Act of 1998," Commerce Clearing
House, 1998
2) "1998 Tax Legislation: IRS Restructuring and Reform Law,
Explanation and Analysis: Commerce Clearing House, 19508
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