Although tax season usually isn’t anyone’s favorite season, it doesn’t have to be a nightmare. Rich Augustine, CPA, of R.J. Augustine & Associates, Schaumburg, Ill., provides some helpful hints on the new tax laws that may apply to your business situation.

1. Alternative Minimum Tax (AMT) repeal for small businesses. The AMT is designed to eliminate “excessive” benefits gained from certain deductions, credits and exclusions that are used to reduce regular tax. Your corporation will have to pay the AMT if it is higher than your regular tax. However, the AMT has been repealed for small C corporations for taxable years beginning after December 31, 1997. To qualify, the business must average gross receipts of less than $5 million for the prior three years. Computing the AMT is complex, so consult your tax advisor.

2. Self-employed health insurance deductions. This deduction increased to 40 percent in 1997 and increases by various increments until it reaches 100 percent in the year 2007. This information may be important if you have your own consulting or personal training business.

3. Medical Savings Accounts (MSA). Congress designed MSAs specifically for businesses employing 50 or fewer employees, sole proprietors and other self-employed individuals who are partners or owners of S corporations. Beginning in 1997, MSAs can be set up if you are covered by a qualified high-deductible health plan. Contributions to your MSA are tax-deductible and earnings on savings will grow tax-deferred. Families can contribute and write off as much as $3,375 per year, and individuals can write off up to $1,462. Tax-free withdrawals can be taken from your MSA to pay for qualified medical expenses, or you can treat your MSA like an IRA and save for retirement. The money saved in your MSA can be used for long-term-care insurance premiums, as well as long-term-care expenses, such as nursing-home care.

4. Home office deduction. A portion of your home can qualify for this deduction if it is used to conduct the administrative or management duties of your business and you have no other fixed location for such activities. The effective date of this deduction is December 31, 1998.

5. Estate tax exclusion for qualified family-owned businesses. This provision is effective for the estate of those deceased after December 31, 1997. It allows a $1.3 million estate-tax exemption for family-owned businesses. The exclusion is in conjunction with, not in addition to, the unified credit. Check with your tax advisor, as the business must meet a number of ownership and participation requirements to qualify.

According to Rich Augustine, the IRS Restructuring and Reform Act of 1998 significantly affects all taxpayers. Most dramatically, the Act makes a number of changes in the IRS/taxpayer relationship.

Shifting the burden of proof to the IRS, facilitating more liberal compromise procedures, and introducing interest, penalty and innocent-spouse relief are just some of the changes Congress introduced to take some of the “pain” out of dealing with the Service.

Be sure to consult your tax advisor for full details and strategies for your particular business situation.

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