What a relief! New tax laws mean more money stays in your business

Entrepreneur, Dec, 2002

THE TAX PICTURE FOR YOUR BUSINESS IS BRIGHTER this year, thanks to the Job Creation and Worker Assistance Act of 2002.

One of the biggest benefits the new law offers is a temporary provision that allows companies to immediately deduct an additional 30 percent of the cost of most new equipment. Under the law, qualified property must be purchased after September 10, 2001, and before September 11, 2004, and must be placed in service on or after September 11 2001, and before January 1, 2005.

The law is especially beneficial to entrepreneurs because they can use the extra depreciation deduction in addition to the small-business expensing election. Keep in mind that real estate generally won't qualify for the depreciation bonus.

Another plus for businesses is a provision extending the period in which a company can carry back losses to offset its income tax liability from two to five years. To be eligible for the extended carry-back period, the losses must have taken place in tax years ending in 2001 and 2002. The law also allows a company's net operating loss deduction to trim its alternative minimum tax able income up to 100 percent.

If you have a net operating loss for 2002 but it would be more advantageous for your business to carry it back just two years rather than five, you must make the IRS aware of this or the loss will automatically be carried back for five years, says Paul Gada, tax analyst with CCH Business Owner's Toolkit, a division of Riverwoods, Illinois, tax and business law information provider CCH Inc.

The new law also extended some expiring tax credits. Check with your accountant to see if you qualify for any of these. Those most likely to affect entrepreneurs include the work-opportunity credit, the welfare-to-work credit, and medical savings accounts.

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