There are some changes to the tax laws effective for 2002 income tax returns that work to the benefit of business taxpayers. Tax accountants will want to make sure their clients are aware of these changes that will save their clients tax dollars on their 2002 tax returns and in years to come.
- The deduction for self-employed health insurance as an adjustment to income increases to 70% for 2002. The remaining 30% qualifies as an itemized deduction. For 2003 the above-the-line adjustment for self-employed health insurance increases to 100%. Insurance premiums for the self-employed individual as well as the individual's family members qualify for the deduction.
- A special 30% depreciation allowance for new depreciable equipment applies to equipment purchased on or after 9/11/01 and before 9/11/04. This is in addition to the Section 179 deduction that already exists. Taxpayers must opt out with a statement attached to their tax return if they qualify for this deduction and choose not to use it.
- Small corporations defined as those with less than $250,000 in total receipts and less than $250,000 in assets are not required to fill out Schedules L, M-1, and M-2 of the U.S. corporate income tax return, Form 1120. Small corporate taxpayers who use Form 1120A are exempted from filling out Parts III and IV of that form; small corporations that use Form 1120S no longer need to fill out Schedules L and M-1 of their tax return.
- Net operating losses incurred in 2001 and 2002 may be carried back for five years or may be carried forward for up to 20 years. The five-year carryback period is assumed, and taxpayers who want to opt out of the carryback period may do so by attaching a statement to that effect to their timely-filed (including extensions) tax return.
- A credit of no more than $500 per year is available for small businesses incurring costs of setting up and administering new qualified employer retirement plans. The credit also applies to the cost of educating employees about such a plan. Businesses eligible for the credit will have no more than 100 employees earning at least $5,000 in pay during the preceding year.
- Employer-provided child care services qualify for a credit of 25% of the qualified expenses plus 10% of the expenses for childcare resource and referral services. The maximum amount of credit than can be claimed in one year is $150,000.
- The welfare-to-work and work opportunity credits have been extended through 2003.