CD ROM Paradise Collection 4/CD ROM Paradise Collection 4 1995 Nov.iso/business/sba952.zip/F416.SBE

Text File | 1995-05-31 | 6KB | 113 lines

@142 CHAP ZZ

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           │"CONTRACT WITH AMERICA" -- TAX PROVISIONS│
           └─────────────────────────────────────────┘

As we release this version of this program in May of 1995,
the U.S. Congress is actively considering a number of major
tax proposals, under the Republican Party's "Contract With
America."  Many of these proposals, if enacted, would result
in significant tax benefits for businesses.  As approved by
the House Ways and Means Committee on March 14, 1995, the
"Contract With America Tax Relief Act of 1995" (H.R. 1215)
includes the following provisions, in addition to a number
of non-business tax cuts for individuals:

  . A 50% capital gain deduction for individuals (effective
    in 1995), and a 25% alternative capital gains tax for
    corporations (which currently pay regular corporate tax
    rates of up to 35% on capital gains);

  . Certain capital assets and property that is used in a
    trade or business would also be eligible for inflation
    indexing, which would increase the tax basis of the
    property each year (thus decreasing the ultimate capital
    gain -- but not affect losses -- when sold, or would in-
    crease the total depreciation allowed on depreciable
    assets).  To qualify for this indexing, property would
    have to be held for more than 3 years;

  . First-year depreciation on tangible personal property
    (machinery, equipment, etc.) would be increased.  At
    present, a taxpayer can fully write off up to $17,500
    in cost of such items in the year of acquisition, in-
    stead of depreciating them.  This amount would gradually
    be increased, up to $35,000 after 1998.

  . The corporate alternative minimum tax would be repealed,
    for tax years after 2000.  In addition, a number of "tax
    preferences" under the alternative minimum tax would be
    eliminated as "preference items" after 1995, including
    intangible drilling costs, excess percentage depletion,
    and other special items mostly relevant to large corpor-
    ations.

  . IRA (Individual Retirement Account) deuctions would be
    expanded, beginning in 1996.  In place of the current
    nondeductible type of IRA, a new "American Dream Savings
    Account" (ADS) would be allowed, into which a taxpayer
    and his or her spouse could each contribute $2000 a year
    on a non-deductible basis.  The benefit of such accounts,
    unlike current non-deductible IRA accounts, would be that
    distributions from an ADS at retirement (age 59 1/2, or
    withdrawals for certain other reasons) would be complete-
    ly income tax-free.  Rules for deductible IRAs would also
    be liberalized somewhat, allowing a deductible contribu-
    tion of up to $2000 a year for a nonworking spouse (com-
    pared to only $250 at present); and

  . The home office expense rules would be liberalized, over-
    turning the 1993 Supreme Court decision in the Soliman
    case.  That case ruled that a home office can qualify as
    a taxpayer's principal place of business under the office-
    in-the-home ONLY IF the relative importance of the acti-
    vities in the home office are significantly greater than
    the activities carried on at other business locations.
    The new rule would permit home office deductions under
    a less restrictive interpretation, so long as the home
    is used exclusively on a regular basis for administrat-
    ive or management activities of the taxpayer's business,
    if the taxpayer has no other fixed location where he or
    she conducts substantial administrative or management
    activities for that trade or business.

  . In addition to the business tax reductions noted above,
    the new tax legislation also would increase the amount of
    assets that can be passed free of estate and gift taxes
    by increasing the lifetime exemption, currently $600,000,
    to $750,000 by 1998, and indexing that amount thereafter.

At this point, it is unclear how these tax reduction provi-
sions will fare in the full House, or in the Senate.  There
seems to be a growing sentiment in favor of cutting spend-
ing in order to reduce the federal deficit, without passing
along the savings from such spending cuts to the taxpayers
in the form of tax cuts.  Stay tuned....

(In addition to the Contract With America tax provisions
noted above, a bill has already been enacted that has re-
stored the 25% deduction of self-employed persons' health
insurance premiums, retroactive to January 1, 1994.  The
new law has also increased this deduction to 30% for 1995
and subsequent years.  If you already had filed your 1994
tax return before this provision was enacted in April, 1995,
and would have been entitled to this deduction but failed
to claim it, you will need to file an amended 1994 return
and claim a refund for the tax overpayment.)

NOTE THAT AS OF MAY 1, 1995, NONE (REPEAT, N O N E) OF
THE ABOVE CONTRACT WITH AMERICA TAX PROVISIONS HAVE BEEN
ENACTED BY CONGRESS.  EVEN IF DO THEY PASS, THEY MAY BE
MODIFIED BEFORE ENACTMENT, OR MAY EVEN BE VETOED BY THE
PRESIDENT.  To find out which, if any, of these tax-cut
proposals have become law by the time you read this, con-
sult your tax adviser; or (less expensively), order the
latest update release of this program.

[We update this software every 3 months and federal tax
law changes are usually fully reflected in this program
before the ink is dry on the President's signature on any
such tax legislation.]