NKBA: New Tax Laws Seen Impacting Kitchen & Bath Firms
- Home Office Expenses: Beginning in 1999, if a home office is regularly and exclusively used for business, it will qualify as a deduction as the "principal place of business" if (1) the office is used for the administrative or management functions of a business, and (2) there is no other fixed location where the taxpayer conducts such functions for the business.
- Health Insurance Deductions: Deductions for health insurance premiums for the self-employed have been increased as follows: 60% in 2002; 80% from 2003-2005; 90% in 2006, and 100% in 2007.
- Capital Gains Tax Breaks: Retroactive to May 7, 1997, the capital gains rate would be reduced from 28% to 20% (to 10% for those ordinarily in the 15% tax bracket). Assets sold after July 28, 1997 must be held for 18 months to be eligible for the favorable rate. Assets acquired after 2000 and held for more than five years would be taxed at a maximum rate of 18% (or 8% for those in the lowest tax bracket.)
The NKBA also emphasizes that having complete and accurate financial record-keeping is critical to business success - particularly at tax time, when having poor records could cause a business to underpay or overpay its taxes.
- Alternative Minimum Tax: The alternative Minimum tax is eliminated for corporations with gross receipts less than $5 million.
- Estimated Tax Payments: Currently those who have income on which no taxes are withheld have to make quarterly payments of estimated taxes if they will be subject to at least $500 in taxes on the income. The new law doubled this threshold amount to $1,000 for all tax years beginning in 1998.
- Capital Gain on Sale of Home: The new exemption from tax for up to $500,000 in capital gains on the sale of a home requires that any depreciation claimed for the home, including depreciation of a home office, must be subtracted from the exempt amount. Previously, it was possible to avoid capital gains attributable to the home office portion at the time of the sale by purchasing a more expensive home within two years.
NKBA financial advisors also note the importance of a solid record-keeping system - whether on paper or on computer - that suits the firm's specific needs.