According to the Independent Insurance Agents of America (IIAA), the tax-cut bill approved by Congress last week will provide a timely boost that will help small business owners mitigate the effects of an economic slowdown.
President Bush will sign the Restoring Earnings To Lift Individuals and Empower Families (RELIEF) Act (HR 1836) next week. The $1.35 trillion, 11-year package of tax cuts was cleared by Congress during a Saturday session in advance of the weeklong Memorial Day recess.
Although targeted to individual taxpayers, it also provides small business with several tax cuts. Under the proposal, marginal tax rate brackets are cut by an average of 3 percent each, with the lowest bracket going down by 5 percent and the highest bracket lowered by 4.6 percent. The top marginal rate, formerly 39.6 percent, will now be 35 percent.
The IIAA indicated that the lower marginal tax rates are a significant success for independent agencies in that more than a third are subchapter S corporations and pay taxes at the higher rates. The organization also stated that reducing the top rates will be a boon to reinvestment by owners looking to strengthen their positions.
The IIAA added that other important components of the just-enacted tax bill are its retirement savings incentives. The law gradually raises the maximum Individual Retirement Account (IRA) contribution from $2,000 to $5,000 in 2008 and allows individuals 50 and older to contribute an additional amount-$500 annually from 2002 to 2005 and $1,000 beginning in 2006-called a “catch-up contribution.” Also, employee contributions to a 401K account gradually will rise from $10,000 to $15,000 by 2006.
The new tax law will sunset automatically after 10 years/ The so-called “Byrd rule” will require a future Congress to enact legislation to continue the tax cuts past 2011.
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