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Cut your business taxes
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February 17, 2000: 12:21 p.m. ET
Company owners can still improve their tax bills even after year's end
By Staff Writer Hope Hamashige
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NEW YORK (CNNfn) - It's never too late to reduce your tax bill. And although filing deadlines are looming, small business owners should use the coming weeks to double-check their deductions and, possibly, find some ways to improve on their tax position.
Review new equipment costs, suggested Jake Weichholz, tax partner in Ernst & Young's entrepreneurial services group. Business owners who purchased new computers, phone systems, filing cabinets and other equipment may save money this year because of a change in the tax code that now allows them to deduct up to $19,000 for new equipment. In 1998, business owners could deduct up to $18,500.
Tax breaks for the self-employed
Now is the time, too, for the self-employed to talk to their financial planner about setting up and contributing to a simplified employee pension (SEP) retirement plans if they have not already done so. "SEP plans are a great way to get a deduction post year-end," said Michael Goodman, a small business consultant at Gerstein, Fisher and Associates in New York.
SEP plans are the only retirement plans that can be set up and contributed to after the year has closed. Self-employed people can contribute 15 percent of their income or $30,000, whichever is lowest, any time before they file income taxes. With extensions, some self-employed people could establish a SEP retirement plan and make their contribution as late as Oct. 15.
The self-employed also should be aware of several changes to the tax code that will benefit them. First, they will be able to deduct a much higher portion of their health care costs compared with years past. This year, the self-employed can deduct 60 percent of health care costs, up from 45 percent on last year's return.
Further changes in the tax code for the self-employed are likely in the next few years. Congress is currently considering increasing health care deductibility to 100 percent for the self-employed. Legislation also has been introduced to increase the business meal deduction to 80 percent from 50 percent. Finally, Congress is also considering raising the new business equipment deduction to $30,000 from $19,000.
Definition of home office expanded
People who work from home, but previously did not qualify for a home office tax deduction, should explore whether they quality this year under Congress' recently expanded definition of a home office.
The earlier definition excluded many professionals such as doctors and salespeople who used their homes for paperwork, but met clients and performed their work at places other than home.
Congress recently expanded its description of what constitutes a home office to include any location where a person carries out substantial administrative or management activities that pertain to their business.
The new definition allows many professionals who work at home and other locations to claim a home office deduction. The size of the deduction, however, depends on the percentage of the home, measured in square feet, that is used as an office.
Don't procrastinate
Goodman advised, however, that while post year-end tax saving measures are important, small business owners and the self-employed should make tax reduction a part of their business plan year round.
"Don't wait until the last minute and don't scramble for deductions just because the filing deadline is coming up," he said. "They should be considering ways to do this all year." 
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