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.
Tuesday, January 6, 2009
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