Some Good News On Taxes
The tax package now wending its way through Congress has some palpable benefits for owners of small businesses. Here's what's in the works so far:
-- Family businesses are expected to get a break on estate taxes, which can be so onerous that heirs are forced to sell or liquidate their businesses to cover them. The American Family-Owned Business Act exempts up to $1.5 million of business assets from federal estate taxes, on top of the current $600,000 personal exemption. For higher amounts, the top rate would be reduced from the existing 55% to 27.5%. Still, many businesses wouldn't be able to take advantage of the proposal because of strict criteria governing what qualifies as a family business.
-- Both the House and Senate have various pension-reform proposals in their bills. The most exciting one for small business is Senate Majority Leader Bob Dole's Savings Incentive Match Plan for Employees, or SIMPLE, says Seth H. Tievsky, a principal at Ernst & Young's national tax office. SIMPLE would make retirement plans easier for small businesses to afford and implement, by eliminating nearly all the federal reporting requirements that now determine a plan's eligibility. The employer would be responsible for making a specified level of matching contributions, but not for administering the plan. The House bill for revamping the existing Simplified Employee Pension (SEP) plan also calls for removing some of the administrative hurdles, though not as many as SIMPLE would.
-- Health-insurance deductibility for self-employed business owners was increased from 30% to 55% in the Senate bill, but this provision is not in the House version.