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Massachusetts increases taxes for small businesses

Posted by Jamie Downey  January 6, 2009 11:05 AM

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The cornerstone of most individual’s financial plan and accumulated wealth resides in their 401(k) accounts. However, the Massachusetts taxing authorities have singled out owners of small unincorporated businesses and are taxing their retirement contributions using rules that differ from everyone else.

During 2008, the Massachusetts Department of Revenue (DOR) issued a directive which disallows partners and other self employed individuals a deduction for contributions made to their 401(k) plans. This directive is a clarification of an existing Massachusetts law that had not been enforced by the DOR for years. This directive does not apply to the employees of said businesses, just the owners. This will effectively increase the taxes of an individual contributing $15,500 to their 401(k) plan by $820.

It is difficult to understand why the Massachusetts legislators have discriminated against unincorporated business owners and decided to tax their retirement accounts? Why not also tax the owners of incorporated businesses? Why not the employees? Why not tax the retirement plans of Massachusetts legislators? Effective law making would provide some level of equality in this matter and would encourage people to save for retirement, not discourage them.

Small business owners and those looking to start business need to be aware that they will see a significant increase in their Massachusetts tax burden in 2008 and in the future.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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ABOUT MANAGING YOUR MONEY
Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

About the contributors

D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit www.morganstanleyfa.com/ringer
Financial Planning Association™ of Massachusetts has 900 members who specialize in the financial planning process. Many of its members engage in philanthropic pro bono work in their communities, recommend legislation, elevate public awareness, promote financial literacy, and advocate for sound economic and tax policies.
Odysseas Papadimitriou is the founder of CardHub.com, a credit card and gift card marketplace, and WalletHub.com, a personal finance site. He has more than 13 years of experience in the personal finance industry, and previously served as senior director at Capital One.

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