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SMALL BUSINESS NEWS

6  December 2010

 

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Good News For Small Businesses (Compromise On Taxes)

Today the President announced that he and the Democrats had reached a compromise that includes the following. 
 

-  2% Payroll Tax Cut

-  The Bush tax cuts extended for two years for all income levels

-  Jobless benefits extended for 13 months

-  A 2% (from 6.2% to 4.2%) cut in Social Security Tax rates for one year

-  Estate Tax Extension

-  Business Expense Write-off

That is good news for small businesses.  It means that most Small Business owners such as Sole Proprietors, LLC’s and S-Corp. who file taxes at the personal tax rate can expect no tax increases.  They can continue to filed taxes at the following rates:

 

 Income

Tax Rate

Tax

           0   -      8,375

10%

           $0.0

    8,375   -    34,000

15%

       $837.50

  34,000   -    82,400

25%

    $4,681.25

  82,400   -  171,850

28%

  $16,781.25

171,850   -  373,650

33%

  $41,827.25

 373,650 & abov e

35%

$108,421.25

 

If you are Married and Filing Jointly and as a Surviving Spouses, your tax rate will be as follows:

Income

Tax Rate

Tax

           $0  -    $16,750

10%

           $0.0

  $16,750  -    $68,000

15%

    $1,675.00

  $68,000  -  $137,300

25%

    $9,362.50

$137,300  -  $209,250

28%

  $26,687.50

$209,250 -   $373,650

33%

  $46,833.50

$373,650  & above

35%

$101,085.50

 

If you are married and filing separately your tax rate will be as follows:

Income

Tax Rate

Tax

           $0  -      $8,375

10%

           $0.0

  $11,950  -    $45,550

15%

    $1,195.00

  $45,550  -  $117,650

25%

    $6,235.00

$117,650  -  $190,550

28%

  $24,260.00

$190,550 -   $373,650

33%

  $44,672.00

$373,650  & above

35%

$105,095.00

 

If you are filing as a regular C corporation your tax rate will remain the same as follows:

  

Taxable income

Tax rate

First $50,000

15%

$50,001–$75,000

25%

$75,001–$100,000

34%

$100,001–$335,000

39%

$335,001–$10,000,000

34%

$10,000,001–$15,000,000

35%

$15,000,001–$18,333,333

38%

Over $18,333,333

35%

 

The agreement reached by the Democrats and Republicans on the Estate Tax calls for a two year exemption of $5,000,000 for individuals estates and $10,000,000 for couples with a tax rate of 35% on estates valued above that.

The Estate Tax is a tax on your right to transfer property at your death.  It is the total (market) value of all your assets and interests.  This includes cash, securities, real estate, insurance, trusts, annuities, business interests, etc.  Your taxable estate is that which is left over after deductions for debts, mortgages, estate administration expenses, property passed to surviving spouses and qualified charities, etc.

Not everyone is required to pay Estate Taxes.  Under the Bush administration estate tax rates changes were implemented.  From 2004-2005 only those with $1,500,000 and above were required to file estate taxes.  From 2006-2008 those with an estate of $2,000,000 or above were required to file.  Starting 2009 only those with an estate of $3,500,000 or above are required to file.

The estate tax rates under the Bush administration under went significant changes as follows:

Prior to 2005:         55%
2005:                     47%
2006:                     46%
2007 - 2009:           45%
2010:                       0%

If there is no extension of the Bush tax cuts the estate tax rate will revert back to 55% on 1 January 2011.  A 55% estate tax would be a significant burden to small businesses.  It could result in closure or selling of the business in order to pay the estate tax. 

Another item in the agreement reached by Democrats and Republicans include a 100% write-off of business expenses (new equipment) from November 2010 through December 2011.  In other words you are allowed to take a100 percent depreciation in the current year instead of spreading it over many years. 

This will allow businesses to reduce their current year taxes by the amount of their new equipment expenses thus reducing the amount of taxable income.  The end result is that businesses get to keep more of the money they earn up front rather than waiting to re-coop it over many years.

Imagine if you bought a new machine for you production line that cost $50,000.  If you depreciated that machinery over 5 years then you would have to spread the cost over that period of time.  Hence, you would get to reduce your taxable income by $10,000 each year for the next five years.  Under the new agreement you would get to reduce your taxable income by $50,000 immediately (current year).

 

by Mike Miller

 

 


 

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