The new tax law's business impact - 1993 budget effect on business tax

Nation's Business, Oct, 1993 by Joan C. Szabo

One of the few bright spots for very small businesses is the new law's bonus depreciation provision, says Mark Mann, a partner with the FERS accounting firm, in Chicago. The new law increases to $17,500 from $10,000 the amount of business equipment costs that can be deducted in the year the equipment is acquired. There are a couple of stipulations: The amount of the deduction cannot exceed trade or business net income, and the benefit is phased out as equipment acquisitions exceed $200,000 in any one year

The following summaries of major provisions of the new tax law, many of which directly affect businesses regardless of size, are presented to help you with your tax planning.

Individual Tax Rates

The new law essentially establishes two new individual tax rates. (See the chart at fight.) One is a 36 percent rate on taxable income over $140,000 for married individuals filing jointly and $115,000 for single individuals. The other is a top marginal rate of 39.6 percent that is reached by means of a surtax imposed on taxable income over $250,000. The new individual income tax rates are retroactive and apply to tax years beginning with 1993.

Any additional income tax owed by an individual as a result of the new law may be paid in three equal installments without any interest charge. The installment due dates are April 15, 1994; April 17, 1995; and April 15, 1996.

No 1993 estimated-tax penalties will be charged for underpayments of tax resulting from the higher rates, and no extensions will be granted, according to the law. Any taxpayer who plans to use the installment plan must check the appropriate box on the 1993 tax return. Keep in mind that installment payments are available only for tax attributable to the new 36 percent and 39.6 percent rates.

Tax experts say the higher tax rates will make investments such as municipal bonds and other tax-exempt or tax-deferred investments more attractive than they have been in recent years.

Corporate Tax Rate

The top corporate rate was raised to 35 percent from 34 percent. It applies to companies with taxable income in excess of $10 million. In addition, those corporations with taxable income over $15 million must boost their tax liability by either 3 percent of the amount over $15 million or $100,000, whichever is lower.

The new rate is effective for tax years beginning Jan. 1, 1993. A corporation whose fiscal year ends after Jan. 1, 1993, must use a blended rate. For example, if your company's fiscal year closes at the end of January, the tax would be calculated by taking eleven-twelfths of the old rate plus one-twelfth of the new rate, for a rate of 34.08 percent.

Alternative Minimum Tax Rate

The alternative minimum tax (AMT) rate--a tax calculation created to ensure that all taxpayers pay at least some federal tax--has been increased. Under the new law, the first $175,000 of alternative minimum taxable income above a specified exemption amount is taxed at 26 percent and the remainder at 28 percent.

The AMT exemption amount is increased to $45,000 from $40,000 on a joint return, to $33,750 from $30,000 for unmarried individuals, and to $22,500 from $20,000 for married individuals filing separate returns.