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Small businesses unfairly taxed in Massachusetts

Posted by Jamie Downey  February 12, 2010 08:31 AM

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With unemployment still hovering around ten percent and an election year underway, both federal and state leaders have recently been embracing small businesses.  According to the Small Business Administration, small businesses have generated 64 percent of all new jobs over the last 15 years.  Unless these small businesses start hiring employees, the elected leaders themselves will be on the unemployment roles later this year.

 

Earlier this week, Governor Patrick came out in favor of increasing the availability of credit to small businesses and trying to reign in health insurance costs.  While these items are important, he may also consider looking at some issues in the Massachusetts tax code that have changed under his watch to the detriment of small businesses.

 

Last year, the Department of Revenue issued a directive that can only be characterized as discriminatory against small business owners.  Massachusetts Directive 08-3 states the following: “partners and self-employed individuals are denied any deduction for contributions to their 401(k) plan”.  This directive came from the Governor’s appointed Commissioner of Revenue. 

 

Here is how it works.  A small business owner maintains (at his cost) a 401(k) plan for his / her employees.  In many cases, the owner even provides a matching contribution to the employees’ account.  The employees contribute to the 401(k) plan and receive a deduction in Massachusetts.  However, the owner that provides the job, provides a matching contribution, and pays for the costs of the plan is not allowed a comparable deduction. 

 

All other classes of workers including; state employees, those working at a not-for profit, those working at large businesses, even the Governor himself are allowed a tax deferred deduction for retirement savings.  The only one exempt from this tax benefit are the self-employed / small business owner.  The Massachusetts Commission Against Discrimination's webpage defines discrimination as follows: “Discrimination is unfair treatment because of an individual's membership in a particular group.”  It certainly would appear that the self-employed are being unfairly treated as compared to other workers.    

 

The tax code says a lot about the way the government treats the various interests in the state.  Looking at this, one can only assume that Massachusetts does not look very favorably toward small business owners, regardless of the lip service given them.
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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