right to set up an MSA. [Health Act §301]. 



Withdrawals from IRA's for 

 Medical Expenses 



The 10% additional tax applied to 

 withdrawals from IRA's made before age 59.5 is 

 now waived if the withdrawn cash is used to 

 pay for medical expenses in excess of 7.5% of 

 adjusted gross income, (i.e. if there is, or would 

 be, a medical expense deduction on Schedule A 

 of Form 1040.) [Health Act §361(a)]. 



Long-term Care Insurance 



Beginning in 1997, long-term insurance 

 premiums that do not exceed specified dollar 

 limits are treated as medical expenses and 

 deducted on Schedule A (subject to a floor of 

 7.5% of adjusted gross income). The eligible 

 amount is age dependent, ranging from $200 

 for individuals aged 40 or less at the close of the 

 tax year, to $2,500 for individuals aged over 70. 

 For self-employed individuals, eligible long- 

 term care insurance premiums are treated the 

 same way as health insurance. [Health Act 

 §§321-327]. 



S Corporations 



There are many changes in laws affecting S 

 corporations including: (a) may have 75 

 shareholders [SBA§1301]; (b) a small business 

 that terminated S status before August 20, 

 1996 (date of enactment) may re-elect S status 

 without the five-year wait [SEA §1317]; and (c) 

 basis of S corporation stock acquired by 

 inheritance is treated the same way as an 

 inheritance from a partnership [SEA §1313]. 

 Most changes are effective from January 1, 

 1997. In most cases, a small business 

 contemplating a change to S corporation status 

 will find that the simplicity and protection 

 afforded by a limited liability company (LLC) 

 makes the LLC a better option. 



As an aside, a farm general or limited 

 partnership may want to consider forming a 

 Limited Liability Partnership (LLP). This gives 

 a general partner essentially the same 

 protection as a limited partner has now, while 



retaining the ability to exercise management 

 control. Making a change to LLP could subject 

 a formerly limited partner to self-emplo5TTient 

 tax. The partner might begin to participate 

 materially in management while previously he 

 or she did not meet the material-participation 

 test for self-emplo3rment tax purposes. The IRS 

 taxes LLP's and LLC's in the same way as 

 partnerships. 



FUTA Exemption Extended 

 Permanently 



For labor performed on or after January 1, 

 1995, the Federal unemplo5rment (FUTA) tax 

 exemption for alien agricultural workers is 

 extended permanently. [SEA §1203]. 



Minimum Wage Increased 



The minimum wage increased from $4.25 

 per hour to $4.75 per hour for the year 

 beginning October 1, 1996 and will increase to 

 $5.15 per hour beginning September 1, 1997. 

 [SEA §2104]. 



Section 179 Expensing Amounts 

 Increased 



Starting January 1, 1997 there is a gradual 

 increase in the amount of personal property 

 used in a trade or business that can be 

 expensed. In 1997, it is $18,000 and $18,500 in 

 1998, rising to $25,000 in 2003. Horses that 

 meet the requirement of section 179(d) are 

 eligible for expensing. Euilding components are 

 not eligible (since they are not treated as 

 personal property). [SEA §llll(a) and 

 §1702(h)(19)]. Note that section-179 expensing 

 is taken on a property for the year that the 

 property is placed in service not for the year 

 that it is acquired. If you have used up all or 

 most of your section 179 amount during the 

 year, consider purchasing equipment just 

 before the end of the year, then waiting until 

 next year to start using it. Take a section-179 

 deduction for the year after the year you 

 purchased the equipment. (See also "Deprecia- 

 tion" below.) 



Fruit Notes, Volume 61 (Number 4), Fall, 1996 



15 



