While 2003 brought many tax law changes affecting small businesses, it looks as if 2004 might be quieter — unless the Bush administration and Congress, mindful that it’s an election year, decide to tweak the laws a little further.
"We may see some other bout of tax cuts or tax packages," said Paul Gada, a senior tax analyst with CCH Business Owners Toolkit, a service based in Riverwoods, Ill. Gada noted that there has been significant tax legislation passed in each of the past three years, and "if it’s more than two, it becomes traditional."
Gada said one change that has been proposed is a reinstatement of what’s called the five-year carryback for net operating losses. That would allow small businesses to amend prior-year returns to include some of the losses from the current tax year.
After the Sept. 11, 2001, terror attacks, Congress passed a law expanding the usual two- or three-year carrybacks to five years for the tax years 2001 and 2002, Gada said. Lawmakers might not only implement the more-generous carrybacks for 2004, but they might also retroactively apply it to 2003, he said.
But at this point, this change and others that would have to be passed by lawmakers are hypothetical.
2004 will, however, bring the changes that typically take effect at the beginning of a new year.
For example, the standard mileage rate, used to compute the deductible cost of operating a car for business purposes, increases to 37.5 cents per mile, up from 36 cents in 2003. The IRS also has announced that businesses operating no more than four vehicles at the same time can use the standard mileage rate. That’s a change from past practice, in which businesses operating more than one vehicle had to keep track of — and report on — their actual expenses for operating the vehicles.
The Section 179 deduction, which allows businesses to deduct upfront up to $100,000 of the cost of new equipment, will be adjusted upward for inflation. The amount of the new deduction is not yet known, Gada said.
There are also new, higher contribution limits for a variety of defined contribution retirement plans, details of which can be found on the IRS Web site at www.irs.gov.
Gada noted that 2004 will be a simpler tax year in some respects for business owners because some provisions in this year’s legislation have made 2003 tax computations more complicated.
For example, the new 50 percent bonus depreciation rule, which allows companies to depreciate up to 50 percent of the cost of equipment purchased in a given year, took effect on May 5. That meant that companies wanting to take advantage of the depreciation rule could only apply it to equipment acquired after that date. Anything purchased before May 5 had to be depreciated under old rules.
With the advent of the new tax year, bonus depreciation is available for equipment bought throughout 2004.
The arrival of a new year is often a plus for business owners, giving them an opportunity to do some housekeeping that will make taxes, and their companies’ overall finances, less of a chore. For example, if your record keeping is haphazard, adopt a new system as of Jan. 1. Many business owners find that it’s easier to keep books on a computer, and there are programs designed for small businesses.
It’s also a good time to become more disciplined, keeping track of cash flow and making estimated tax payments when they’re due. And you should take advantage of your accountant’s fairly clear schedule — it won’t stay that way for long, with tax season approaching — and make an appointment to project what business will be like for your company during 2004.
A little planning will go a long way toward saving your business some money in the new year.
Small Business is a weekly column on the topic by The Associated Press.
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