April 15, 2004, is the due date for the first installment of estimated tax--something that sole proprietors and owners of pass-through entities should not forget. Fortunately, there are a number of tax breaks you include in figuring your first estimated tax payment.
Health savings accounts (HSAs). If you have a high-deductible health insurance policy that meets certain conditions, you can contribute to a special savings account. Contributions are tax deductible; withdrawals for medical expenses not covered by insurance are tax-free. If your policy covers your employees and you contribute on their behalf, your contributions are tax deductible and are exempt from payroll taxes. Note: These plans replaced Archer medical savings accounts, which expired on December 31, 2003. If you have an Archer MSA, you can continue to fund it or roll over the money to an HSA and contribute to the new plan (assuming you qualify).
Retirement plan contributions. Contributions to profit-sharing and SEP plans can be up to $41,000 in 2004 (up from $40,000 last year). In figuring contributions, you can take into account up to $205,000 in compensation or net earnings from self-employment (up from $200,000 in 2003). The salary reduction contribution limits to 401(k) and SIMPLE plans have also increased. The 401(k) limit is $13,000, or $16,000 for those age 50 and older by the end of this year (up from $12,000 and $14,000 respectively). The SIMPLE limit is $9,000, or $10,500 for those age 50 and older by the end of this year (up from $8,000 and $9,000 respectively). Note: While you have until the extended due date of your 2004 return to actually put money into the plan, you may need to take action before the end of the year to set up the plan.
First-year expensing. The dollar limit on deducting the cost of equipment purchases in lieu of depreciating them over a number of years increased to $102,000 (up from $100,000 in 2003).
Standard mileage rate for car use. Instead of writing off the actual cost of a car used for business, you can rely on the IRS rate, which is 37.5 cents per mile in 2004 (up from 36 cents per mile in 2003). Note: Despite the jump in oil prices, the IRS has not indicated it will increase the standard mileage rate during this year.
Note: While tax rates have not changed for 2004, the tax brackets have been adjusted for inflation. This means you can earn more income without falling into a higher tax bracket. Be sure to check the new brackets when figuring your estimated tax. For more information, see IRS Publication 505, Tax Withholding and Estimated Tax, at www.irs.gov.
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BARBARA WELTMAN is an attorney and a trusted professional advocate for small businesses and entrepreneurs. She is the author with such titles as J.K. Lasser’s Small Business Taxes and Smooth Failing, and she contributes regularly to American Express OPEN and SBA.gov. Her articles have appeared in the Wall Street Journal and U.S. News and World Report. Weltman is also the publisher of Idea of the Day and monthly e-newsletter Big Ideas for Small Business at www.barbaraweltman.com and hosts radio shows and podcasts, including Build Your Business radio. She has been named one of the 100 Small Business Influencers in the U.S. for the third year in a row. @barbaraweltman