Business Tips:
July 7, 2003 - Comments by James Koch, President and CEO / KOCH Consulting  
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Tax Planning after the Jobs and Growth Tax Relief Reconciliation Act of 2003.
I began my career with a national firm in 1970 and immediately had to digest the enormous consequences of the Tax Reform Act of 1969. At that time, this was the most sweeping piece of tax legislation in history. Since 1970, Congress has manipulated tax law for the purposes of economic stimulation and social engineering. Whatever the case, Congress has changed the tax law to some degree in each of the last 33 years.

The year 2003 is no exception. Tax planners had just begun to settle in on the changes from the Economic Growth and Tax Relief Reconciliation Act of 2001 that took effect in 2002 and later years. On May 28, 2003, President Bush signed into law the Jobs and Growth Tax Relief Reconciliation Act of 2003. What makes this a “tax planner’s mine field” is that many of the provisions of the 2001 Act are changed or extended by the 2003 Act, and in some cases the taxpayer is given the choice of which of the acts to follow.

There are provisions that impact individual taxpayers and investors. I will save those discussions for another time.

Using Tax Savings to Purchase Capital Goods

My clients are mostly businesses and my comments here will be isolated to this area. There are two significant provisions in the 2003 law that are directed at business. Both are intended to encourage capital expenditures by business.

For small businesses, the Code Section 179 expense limit is increased from $25,000 to $100,000, while the phase-out based on total expenditures for the year is increased from $200,000 to $400,000. For all businesses, the first-year bonus depreciation enacted in the 2001 Act is expanded from 30 percent to 50 percent.

Some Other Business Tax Changes

Selection of the form to operate a new business is impacted by the changes in the taxation on dividends paid to shareholders. The choice between operating as a regular corporation or as a pass through entity (partnership, LLC and LLP) will be more important and take more planning. Do not automatically dismiss the use of the old “C” Corporation.

The new law impacts the use of “S” corporations and makes them less attractive. Use caution in using this election for your new entity.

Depreciation rules for luxury automobiles have been expanded. Purchase of a “heavy” SUV can escape the luxury automobile limits completely.

The key to using the new law to your advantage is proper planning. We can help you here. Contact us for a free initial conference.

For more information contact us at jkconsult54@hotmail.com

Archives

Business Tips
-January 2004

Financial Fitness Exam
-August 2003

Tax Planning
after the Jobs and Growth
Tax Relief Reconciliation
Act of 2003

-July 2003

Why Do So Many Small Businesses Fail?
–May 2003

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