Small Business Tax is an important to know, like Sales Tax form specially when it changed, here in this article we'll see that affect and is it good or bad as it show below:
The tax bill signed into law by President Bush in late October 2004 was widely derided by editorial writers as a special-interest giveaway, an early "corporate" Christmas tree. Indeed, many provisions of this bill apply to larger companies or specific industries. But there's also a lot in this tax bill — formally known. as the American Jobs Creation Act of 2004 — that applies to small businesses. While some of the changes simplify tax issues for small businesses, many of the new rules could complicate tax planning and preparation, even if they cut your tax burden.
Here are five major features that small-business owners should be aware of — and should be ready to consult with their tax advisers about.
1. Of the bad news out upfront: It used to be that you could buy a sport utility vehicle (SUV) with a gross weight of more than 6,000 pounds and write off the full cost of it in one year, unlike the rules for other, smaller passenger vehicles. Let's just say that this tax break didn't hurt sales of larger SUVs any, for business or pleasure. But the loophole has been tightened as of the date the tax bill was signed. You now, under Section 179, can deduct no more than $25,000 of the cost of a large SUV.
2. Section 179 expensing is extended: The closing of the SUV loophole has gotten a lot of attention, but the ability to immediately write off large amounts of equipment is more relevant for most small businesses. The tax bill extends through 2007 your ability to deduct at least $100,000 in qualifying equipment purchases annually. That amount is reduced only if you put into service any one year. The deduction amount is adjusted each year for inflation, making it worth $102,000 for 2004 and likely $104,000 for 2005.
3. A change in leasehold depreciation rules: Any business making qualified leasehold improvements can depreciate those costs over 15 years instead of the previous 39-year standard. This change also applies to qualified restaurant property improvements. The more favorable schedule is good for improvements made through the end of 2005.
4. A significant, but complicated, cut in taxes on manufacturers: There's now going to be a tax deduction for business income for domestic manufacturers. This tax cut will be phased in, starting in 2005 with a 3% exclusion of manufacturing income from taxes. One of the interesting gray areas will be figuring out what qualifies as law, it appears that manufacturers now include at least some businesses involved in filmmaking, architecture, electricity and gas production, computer software, and engineering, among other enterprises. This "corporate" tax break is going to be available to C corporations, but also to S corporations, limited liability companies, and even sole proprietorships. (For information on the differences and pros and cons of forming business entities such as these, see this article.) While excluding a 3% income slice from taxes may not look like a significant amount now, this break is going to increase over time. Eventually, it will be ramped up to a 9% exclusion — that's currently scheduled to happen in 2010. A 9% income exclusion translates roughly to a cut of three percentage points in the tax rate for an individual or business in the 35% tax bracket. This new deduction is businesses and their tax pros. First off, you're going to have to determine whether part of your business actually qualifies as domestic manufacturing. (This isn't as cut-and-dried as it may seem: At one point, fast-food companies were going to be included in this definition; the final bill excludes the retail sale of food or beverages.) Then, you'll have to reduce your payments for domestic production by several items, including applicable costs of goods Sold, allocable expenses and deductions, and other costs. It's possible that businesses will in essence be computing their taxes on two platforms: "manufacturing" income and expenses, and "non-manufacturing" income and expenses. Bookkeeping programs likely will be modified to help companies and individual taxpayers cope with these new complexities; you'll also want to update your software to accommodate these changes. Have to reflect ways of reporting these new changes and complications.
5. Changes in rules governing S corporations: Let's close with something easy: The number of shareholders allowed in a Scarp is increased from 75 to 100, beginning in 2005. Also, the definition of a shareholder is changing, so that all members of a family, including spouses, children, and grandchildren, can be treated as one Shareholder for the purposes of determining the number of shareholders in a Scarp.
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The article Source: http://www.microsoft.com/smallbusiness
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