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Patricia M. Murphy 



Highlights 



OF THE 1993 TAX ACT 



AFTER BARELY MAKING IT THROUGH CONGRESS, 

 the tax bill President Clinton signed on August 10, 1993, 

 was a compromise. Missing from the final bill was the 

 broad-based energy tax, and in its place was an increase 

 in the gasoline tax. Also missing was the investment tax 

 credit many thought would help stimulate the economy. 

 To see how the new law will affect you and your busi- 

 ness, here's a brief overview of some of the newly 

 enacted provisions. 



PERSONAL TAX RATES 



One of the most controversial changes creates two new tax brackets for 

 high income taxpayers. The first is a 36 percent bracket for individual 

 taxable income over $1 15,000 or $140,000 for joint filers. The second is a 

 10 percent surtax that translates into a 39.6 percent bracket for indi- 

 vidual or joint income over $250,000. To ease the burden of the higher 

 tax rates, those affected by the change will be able to make three an- 

 nual installment payments of the additional tax that will be due under 

 the new rates. 



HEALTH INSURANCE FOR SELF EMPLOYED 



Under the old law, self-employed individuals could claim a deduction 

 for 25 percent of health insurance premiums for themselves and their 

 dependents, whether or not they itemized their deductions or had 

 medical expenses high enough to generate a tax benefit. This provision, 

 which expired on |une 30, 1992, was retroactively reinstated and ex- 

 tended through December 31, 1993. Taxpayers should review their 1992 

 individual income tax returns to see if they would benefit from amend- 

 ing those returns to claim the deduction for the |uly to December 

 period. 



INCREASED SECTION 179 DEDUCTION 



Under the old law, taxpayers could deduct up to $10,000 of purchases of 

 tangible personal property used in a trade or business, instead of de- 

 preciating those assets over a longer period of time. Effective January 1, 

 1993, the amount of the deduction increased to $17,500. 



AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS 



The new laws regarding amortization (which is comparable to deprecia- 

 tion) of goodwill and other intangibles are effective as of August 10, 

 1993, and apply to the purchase and sale of businesses. In the past, the 

 portion of the purchase price paid for goodwill generated no tax benefit 

 for the buyer since it could not be depreciated or amortized. Conse- 

 quently, the purchase and sales agreement often allocated part of the 

 purchase price to specific intangibles that could be amortized, such as 

 customer lists, covenants not to compete, etc. After years of IRS chal- 

 lenges to these practices, the new law allows goodwill and other intan- 

 gibles to be amortized over 15 years. Regardless of the actual life of the 

 asset, the 15-year life applies. For example, if a five-year non-compete 

 agreement is negotiated as part of the purchase and sale of a business. 



December 1993 / January 1994 



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