February 2006    Vol. 15, No. 2  REAP HOME PAGE  A publication of the Center for Rural Affairs    
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REAP Rural Business Roundtable

Topic: Some Tax Issues and Reminders to Consider Now

It’s that time of year again for many businesses to close out their year-end books and work with their tax preparer or accountant to file income taxes. This roundtable topic is devoted to a couple tax issues that some small businesses may consider. Some may qualify for the Federal Earned Income Tax Credit or have plans to use the new Microenterprise Tax Credit Advantage program in Nebraska starting in the ’06 tax year.

REAP suggests taking some time at your next Association or REAP Roundtable meeting to discuss tax credits and how they can help us reduce tax liability or provide some cash back for business operations or personal use.

The www.irs.gov website contains a wealth of tax information for businesses. There is an online video workshop that could be used as an informative REAP association program.

Microenterprise Tax Credit Advantage
A New Nebraska Micro Business Investment Tax Incentive

For calendar years beginning 1/1/06 through 12/31/10 a new Nebraska tax credit allows a business with five or fewer employees in an economically distressed community or area to qualify for a 20 percent refundable investment tax credit. The tax credit can be from investment made to increase buildings and depreciable personal property other than vehicles and new employment (increase in compensation over compensation in tax year prior to application.)

There is a lifetime limit of the tax credit of $10,000 for a business applicant and related party. More information about the Nebraska Advantage Act (LB 312) and this new tax credit are available at www.NebraskaAdvantage.biz  and the application guide can be found at www.revenue.state.ne.us/incentiv/microent/micro_guide.htm . Your tax preparer or accountant should be able to help you with the application.

Earned Income Tax Credit (EITC)
A nice federal tax credit that has been around for quite awhile.

For some self-employed businesses, EITC could make income tax filing very well worth it!

The EITC is a credit for people who work or are self-employed. Earned Income Tax Credit is based on several criteria, including earned income level, filing status and qualifying children. You (and your spouse, if you are filing a joint return) and any qualifying children listed on Schedule EIC need valid social security numbers. If you qualify for the maximum EITC with two or more qualifying children, that could mean up to $4,400 credit to offset income and self-employment taxes owed. 

Qualifying Child Maximum Credit
Two or more children $4,400
One child $2,662
No children $399

Earned income amount is more in 2005. The maximum amount of income you can earn and still get the credit has increased. You may be able to take the credit if:

  • You have more than one qualifying child and your earned income was less than $35,263 ($37,263 if married filing jointly),

  • You have one qualifying child and your earned income was less than $31,030 ($33,030 if married filing jointly), or

  • You do not have a qualifying child and your earned income was less than $11,750 ($13,750 if married filing jointly).

Investment income amount is more too. The maximum amount of investment income you can have and still get the credit has increased to $2,700.

REAP is always interested in your feedback and the Center for Rural Affairs is involved at the State and Federal level on policy issues. Share your ideas or concerns about any current or future tax program with your REAP Business Specialist so they may pass along the information to our staff.

Roundtable Discussion Questions

1. Ask a member to bring further details about the New Nebraska Microenterprise Tax Credit from Nebraska Department of Revenue website or from their tax accountant. Or ask a tax professional to present information to your group. Review the guidelines and consider the potential benefit to your business or to other businesses in your community that could benefit.

2. Discuss how the federal earned income credit or other tax credits can be an incentive for small businesses to file income tax. At what point do small start-up businesses that may be operating informally move into the “formal” economy? Can tax credit programs encourage such activity?

3. Ask group members if there are tax issues that they would like to discuss or learn more about. If someone present is knowledgeable on that issue, discuss it. Plan future roundtable discussions or presentations on the tax related issues that can help your members.

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