Your Business is Not Saving Money Where it Should in 2011
Posted by Matt Krautstrunk on January 19, 2011 in Business News, Financial Services [ 9 Comments ]
There’s been a lot of small business tax jargon being thrown around lately. Some are uber confusing, but if you are a business owner, or plan to be, these new tax laws and credit deductions are worth some extra effort to understand.
As a small business owner, it seems like every incentive and program in the recent years has been designed for large corporations. Quite simply, the more you spend the more you can grow. Big business hasn’t felt the dire effects of the recession like small business has. Take for instance the costs of health insurance, “Premiums typically run 18% higher for small businesses than for larger companies,” according to CNN Money. Working without a marketing department, or handling your business payroll services in house were quite common amongst small businesses in 2010; however new laws alleviate some of the tax burdens and allow small businesses to begin investing again.
Health Care Reform: is one of the newest additions to small business stimulus plans
- For the next 3 years, the credit will cover 35% of the money spent on health insurance premiums.
- Employing less than 25 full-time workers.
- Employees average annual wage is less than $50,000.
- Cover at least half the cost of employee health insurance premiums.
The Fine Print
- Businesses can only use the credit to offset Federal Income Taxes Paid, and can be carried for 20 years.
According to CNN Money, “An auto repair shop with 10 employees that has a total payroll of $250,000 — meaning each worker averages $25,000 — and spends $70,000 annually on health insurance premiums would max out the benefit, collecting a credit of $24,500 on its 2010 taxes.”
Section 179: can be especially appealing for startups and businesses looking to invest for the future. Section 179 allows businesses to write off the full amount of qualifying business equipment in 2011, up to $500,000.
- Any business can save money on their taxes by writing off purchases of up to $500,00 this given year.
- The equipment purchased must be accepted under section 179.
The Fine Print
- All businesses that purchase or leases less than $2 million in new or used business equipment during tax year 2011 will likely qualify for the deduction.
- A business must be profitable in 2011, but if a business is not profitable, they can use a “bonus depreciation” to carry to a year when they are profitable.
Business Credits: We all know, business owners are not a huge fan of the Alternative Minimum Tax. Recently, the 2010 and 2011 AMT exemptions were increased, which helps the middle class taxpayers free themselves from this alternative tax.
- Now, AMT deductions allow “General Business Credit” to be considered a deductible.
- You fall in the AMT tax bracket, between the regular tax structure and the AMT tax your required to pay the tax that is more expensive (each are calculated separately).
The Fine Print
- Your total general business credit for the year can’t exceed your net income tax, minus the greater of your tentative minimum tax, or 25 % of your net regular tax liability that is more than $25,000.
“Sally’s general business credit for the year is $30,000. Her net income tax is $27,500. Her tentative minimum tax, figured on Form 6251, is $18,487. The amount of general business credit she can take for the year is $9,013. This is the net income tax of $27,500 minus the larger of her tentative minimum tax, $18,487,” According to Tax Guide.
Whether you are looking to save a bit of costs this tax season, or invest in new equipment this year, 2011 is prime time for small business growth. Numerous loans, and tax credits are available to aid and assist in your search for businesses growth tools. If you cannot find the available financing, check out the growing trend of peer lending, according to The Street, “The No. 1 reason why borrowers choose Lending Club as opposed to a bank is lower interest rates. We are a peer-to-peer lending network and therefore create a more efficient way of getting funding to borrowers, whether small businesses or individuals.”
We here at Resource Nation, hope that this outline of the 2011 financial year helps you guide your small business decisions.
Image Credit: Snus News