January 11th, 2011 Amanda Han CPA (Taxloopholes.com Tax Strategist)
As promised, today we’ll cover how the 2010 Tax Relief Act impacts you as a business owner.
You’ve got to be wondering: How will the changes impact my business?
There are a handful of changes from the new tax bill that will likely benefit business owners us, but you must know what they are and how you can use them in order to actually save money on YOUR tax bill.
One of the most impactful tax changes from the 2010 Tax Relief Act is 100% bonus depreciation. Remember, depreciation is that “phantom” expense that allows you to cheap Levitra write off the value of an asset over time. As part of the 2010 Tax Relief, businesses can now take advantage of a 100% bonus depreciation deduction for qualified investment purchases made from now until December 31, 2011. This is a really big opportunity.
What the IRS is doing is basically allowing you to take an immediate tax deduction for certain investments that you make as part of your business. So if you are making some big purchases for your business, instead of taking a tax deduction over the next several years, this new tax break allows you to write 100% of it off all in the first year.
Here are two really important parts of this new opportunity to note. First, this 100% tax deduction is available for ALL businesses regardless of size or income. So from the smallest mom-and-pop business to the Fortune 100 Companies, everyone can enjoy this benefit. Secondly, there is no limit to “how much” business expenses can be written off. In fact, you may be able to reduce your overall business income to ZERO or even negative with this great new tax break!
Let’s go over an example of how this works. Imagine you own a sandwich shop and the business made $100,000 for the 2011 year. With federal and state taxes, you may be looking at a tax bill of close to $40,000. With the 100% bonus depreciation, what you can do is instead of paying the taxes to the IRS, invest that money back into your business! The money that you spend for business investments may get you a dollar for dollar tax write-off and potentially result in ZERO taxes for your business! In this example, you could be saving up to $40,000 in taxes for the 2011 year.
Again, this 100% bonus depreciation is a great tax savings opportunity that we all need to take advantage of because it applies to all sorts of businesses from the smallest sole proprietors to the largest international companies.
One catch is that in order to qualify for the 100% bonus depreciation, the business assets that you purchase must be “new” assets.
So what happens if you made a purchase of new company equipment that is “used” equipment? Then this used equipment will not qualify for the 100% bonus depreciation. But before you get discouraged, here is the next tax break that allows you to still take a 100% write-off for this used equipment.
Under the new 2010 Tax Relief Act, small businesses can still write-off up to $250,000 of qualified business investments in the 2011 year. So in this example, even though the used equipment you purchased for the business cannot qualify for the 100% bonus deduction, you may still be able to write off the whole thing against your income of up to $100,000 for the year.
As business owners, we are firm believers of continuing education for our employees. In order for our businesses to succeed and thrive, our employees need to receive continuing education so they are kept abreast of all the latest changes to the tax code, the financial industry, and the business climate as a whole. That is why I love the Educational Assistance Exclusion and why it is such an exciting and beneficial tax break for business owners.
With the 2010 Tax Relief Act, the IRS allows employers to provide up to $5,250 in education assistance per employee and take a tax write-off for it. This means that you can pay up to $5,250 of education costs for each employee, take a tax deduction for it on your federal, state, and payroll tax returns.
Another great benefit is that this will also be TAX FREE to the employees as well! What an amazing benefit that provides a win-win situation. You can save taxes, educate your employees, and improve your business!
Next week we’ll share Part Three on the 2010 Tax Relief Act – focusing on implications for real estate investors.
Have a great weekend everyone.