THE NEW TAX LAW REDUCES SOME BUSINESS TAXES
The new tax law expected to be signed by President Bush allows small businesses to write off $100,000 in investments this year. This is an increase from the $25,000 write off limit. All businesses could depreciate half their assets this year, recouping their money faster. For example, a small business that spends $150,000 on new equipment this year can write off $100,000 immediately and recoup half of the remaining expense through depreciation this year. As a result, a business can immediately write off as an expense at least $125,000 of its equipment purchases.
Investors will see the tax rates they pay on dividend income and capital gains fall to a top rate of 15 percent through 2008. Low-income taxpayers will pay 5 percent now through 2007, and nothing in 2008. Investors currently pay taxes on dividends at the same rates as ordinary income, as high as 38.6 percent, and capital gains held for more than one year are taxed at 20 percent. In 2009, tax rates on dividends and capital gains revert back to current levels.