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Good News For
Small Businesses (Compromise On Taxes) |
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Today the President
announced that he and the Democrats had reached a compromise
that includes the following.
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- 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 |
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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 |
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0 - 8,375 |
10% |
$0.0 |
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8,375 - 34,000 |
15% |
$837.50 |
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34,000 - 82,400 |
25% |
$4,681.25 |
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82,400 - 171,850 |
28% |
$16,781.25 |
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171,850 - 373,650 |
33% |
$41,827.25 |
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373,650 & abov e |
35% |
$108,421.25 |
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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
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10% |
$0.0 |
$16,750 - $68,000
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15% |
$1,675.00 |
$68,000 - $137,300
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25% |
$9,362.50 |
$137,300 - $209,250
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28% |
$26,687.50 |
$209,250 - $373,650
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33% |
$46,833.50 |
$373,650 & above
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35% |
$101,085.50 |
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If you are married and filing separately your tax rate
will be as follows: |
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Income |
Tax Rate |
Tax |
$0 - $8,375
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10% |
$0.0 |
$11,950 - $45,550
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15% |
$1,195.00 |
$45,550 - $117,650
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25% |
$6,235.00 |
$117,650 - $190,550
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28% |
$24,260.00 |
$190,550 - $373,650
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33% |
$44,672.00 |
$373,650 & above
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35% |
$105,095.00 |
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If you are filing as a regular C corporation your tax
rate will remain the same as follows: |
|
Taxable income |
Tax rate |
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First $50,000 |
15% |
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$50,001–$75,000 |
25% |
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$75,001–$100,000 |
34% |
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$100,001–$335,000 |
39% |
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$335,001–$10,000,000 |
34% |
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$10,000,001–$15,000,000 |
35% |
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$15,000,001–$18,333,333 |
38% |
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Over
$18,333,333 |
35% |
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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.
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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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