TAX TIPS

For more information:

• Tax tips for Small Business in PDF format

• For information on all tax-related issues, visit www.irs.gov.

• You can find your local IRS service center (there are five nationwide) by visiting www.irs.gov/file/index.html.

• The IRS now provides toll-free assistance specifically for accountants and other tax preparers at 866-860-4259. The number is open Monday to Friday, 7:30-5:30 EST

• Tax Hawk - Select “tax tips” to access list of top 10 tax tips and more. Electronic filing available.

• The Taxpayers-Advocates - Contains info on business taxes, retirement accounts, how to avoid problems at tax time and more.

• IRS - Click on “Tax Tips for 2003” to find information on filing, record keeping and other tax topics.

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Small and medium business tax law changes that impact your 2003 tax filing:

The comprehensive Economic Growth and Tax Relief Act of 2001 legislated the most significant tax law revisions in 20 years. Individuals who received surprise tax refunds last summer have already benefited from one of the law's biggest changes: lower tax brackets. Many of the Act's other provisions were also taxpayer-friendly.

Some of the provisions, such as last year's refund, were available immediately. Others are being phased in over time, which means a few will be showing up for the first time for 2002, potentially impacting in 2003. This is particularly true for small and medium business filers, both employers and employees. Here is a list of some of the major revisions going into effect for small businesses for 2002. You'll notice that many relate to retirement plan programs.

New provisions benefiting business owners
Many of the provisions in the Tax Relief Act directly benefit small and medium business owners:

• Small business retirement plan credit: If a business with 100 or fewer employees establishes a new retirement program (such as a 401(k) plan) during 2002 or any year after, it may be eligible for a credit up to $500. Unfortunately, modifications to existing plans do not qualify.

• Section 179 deductions: Depreciation deductions have been accelerated in 2002 to allow a small business filer to write off the entire cost of a capital expenditure in a single year. Previously, the depreciation had to be amortized over several years. In most cases, this change can reduce your tax liability. For 2002, the Section 179 deduction ceiling is $24,000, rising to $25,000 in all subsequent years. Click here for our Tax Savings Calculator

• Special depreciation allowance: For eligible property placed in service in 2002, you may deduct 30 percent of its adjusted basis. This special allowance may be taken in conjunction with regular depreciation and the Section 179 deduction.

• Net Operating Losses (NOL): As of 2002, you may carry back net operating losses as far as five years, though you may still elect to go back fewer years. Before this year, the carryback period was limited to either two or three years.

• Employer-provided childcare credit: Business owners may claim a credit up to $150,000 for the cost of building, operating, or contracting out qualifying childcare services for employees. The credit is limited to 25 percent of total childcare expenditures and 10 percent of childcare resource and referral expenditures, as long as all employees are eligible to participate. If you discontinue childcare assistance in a future year, you many need to refund some or all of the credits already claimed.

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  New provisions benefiting employees

  Other parts of the 2001 reform package directly benefit the employees of small businesses.

• Retirement plan contribution caps: The maximum allowable contributions to 401(k), 403(b) and SEP (Simplified Employee Pension) plans have all been lifted by $500 for 2002. Incremental increases will continue to be phased in through 2006. Small business owners and employees should take advantage of the higher limits when possible.

• Employer-provided retirement advice: The value of qualifying retirement planning assistance (advice or other information) from employer to employee is no longer required to be included in the employee's wages, as long as the assistance is available to all employees. However, tax preparation, accounting, legal, and other advice or services are not covered by this provision.

• Employer-provided education assistance: The value of qualifying educational assistance from employer to employee is no longer required to be included in the employee's wages, up to a limit of $5,250. In 2002, graduate school courses are covered for the first time, in addition to undergraduate courses.

• Employer-provided adoption assistance: The amount of qualifying adoption assistance from employer to employee excluded from the employee's wages has doubled from $5,000 for 2001 to $10,000 for 2002 and subsequent years.

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IRS reform and EINs

The 2001 legislation also included welcome reform of the IRS itself. The IRS stated its chief goals as improved taxpayer service and better operational efficiency. Among the IRS' reforms beneficial to small businesses were those related to Employer Identification Numbers (EIN). Beginning in 2002, taxpayers may obtain a new EIN by phone at 866-816-2065, Monday through Friday, 7:30-5:30 EST.

In addition, accountants and other tax preparers may now file a single form to request a new client EIN, instead of the two that were previously required. The new version of Form SS-4, Application For An Employer ID Number, now includes a section for third party designees, alleviating the need for an accompanying Power Of Attorney Form. However, the client must still sign the SS-4, which is available for download at http://www.irs.gov/formspubs/index.html.

We hope that this brief overview of the 2002 tax law changes pertaining to owners and employees of small businesses has been helpful. Please be aware that it is not intended to be exhaustive or all encompassing -- there may be other parts of the Economic Growth and Tax Relief Reconciliation Act of 2001 that will affect your 2002 tax return preparation. Be sure to consult your tax advisor or the IRS for help with the new tax law changes.

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