Take steps now to benefit from 2004 tax laws

Last October, President Bush signed two substantial tax bills into law. Like other recent tax law changes, some provisions are permanent, but most are temporary. What steps can you take to maximize the new tax breaks for your business?

• New deduction. There’s good news for many businesses that can now claim a “manufacturer’s deduction” of up to 3% of their taxable income in 2005 and 2006, 6% for the following three years, and 9% starting in 2010. Regulations will define what qualifies as manufacturing, but it appears that the definition will be quite broad. Construction, engineering, and computer software companies are among those that will qualify.



• S corporation. The new rules also make it easier for your business to qualify as an S corporation by increasing the maximum number of shareholders from 75 to 100, and allowing members of the same family to elect to be treated as one shareholder.



• Start-up costs. Up to $5,000 of business start-up expenses are now deductible in the year the business begins operations. Previously, you’d amortize start-up expenses over 60 months.



• Depreciation and expensing. Though 50% bonus depreciation for business equipment purchases is no longer available, first-year expensing is increased to $105,000 for 2005. Also, you can depreciate 2005 leasehold improvements made to your commercial space or restaurant property over 15 years. Next year, you’ll once again deduct the cost of these improvements over 39 years.

For more information and assistance with your 2005 tax planning, please give us a call.