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The Tax Cuts of 2010 - Good News for Businesses
Do you own a business? Are you wondering how your company is affected by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 - aka the Obama Tax Cuts?
If so, read on. We explain how your business can benefit from the new tax cuts. We also tell you about your responsibility to enact the payroll tax cut for your employees.
Paying Less Tax Under the New Legislation
The Bonus Depreciation Doubled in Size
Under the Obama Tax Cuts, the bonus depreciation amount jumped from 50% to 100%. This means businesses can write off 100% of eligible purchases (e.g., equipment and off-the-shelf computer software) bought and put in service between September 9, 2010 and December 31, 2011.
Section 179 Deductions Also Got a Boost
Section 179 deductions allow businesses to deduct the full purchase price of property from their gross income.
Section 179 deductions differ from standard depreciations because they allow you to write off your expenses in the same year you bought property, rather than spreading it out over time.
Section 179 was bolstered under the Small Business Jobs Act of 2010 (signed September 27, 2010), with the allowable deduction set at $500,000 for 2010 and 2011. Now, under the Obama Tax Cuts, the maximum deduction will fall only to $125,000 in 2012, rather than to $25,000, as it would have without the recent tax cut package.
This should inject confidence in the business owner that she can continue to invest in her business for the next few years - which is beneficial not just for her, but for the U.S. economy as a whole.
Section 179 Vs. Bonus Depreciations - Which Is Better?
Section 179 deductions are available on all new and used equipment, whereas the bonus depreciation (set now at 100%, with no limit) is for new equipment only.
Think of the bonus depreciation as an extra deduction you can take - but you must take it in the first year only.
To figure out which type of deduction is right for your business for tax year 2010, give us a call.
Complying with the New Payroll Tax Cut
The Obama Tax Cuts instituted a one-year reduction in the Social Security tax for employees, from 6.2% to 4.2%. This means the single taxpayer making $50,000 will save $1,000 on taxes in 2011.
But it's up to business owners to adjust their employees' withholdings. They must do so as soon as possible in January 2011, but no later than January 31, 2011. Notice 1036 lists the new amounts you should withhold from employees' paychecks.
Self-Employed Folks See a Reduction, Too. Those who own businesses with no other employees should also be aware of their new Social Security withholding amount, which fell from 12.4% to 10.4%. This combined with the 2.9% Medicare rate brings the total of the 2011 self-employment tax rate to 13.3%.
Confused? We're Here to Help
The Obama Tax Cuts are designed to bolster the economy by putting more money back in the pockets of business owners, thus allowing them up to hire more workers.
But to take advantage of the new rules for deductions and depreciations, you have to understand the new law.
That's where we come in. To find out more about how to improve your business with certain investments now and in 2012, give us a call.
2010 Tax Relief Act - Personal Income Tax
On December 17, 2010, The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was signed into law by the President. The personal income tax provisions in this law provide for an extension of the Bush-era tax cuts which were scheduled to expire at the end of 2010. The 2010 Tax Relief Act temporarily extends most of the tax cuts for 2011 and 2012 only.
Income Tax Rates
Individual income tax brackets will remain unchanged for 2011 and 2012, keeping the current structure ranging from 10-35%. The capital gains tax rates will also remain as is for the next two years.
Payroll taxes are reduced by 2 percentage points. Social Security tax rate for the employee-portion will be reduced temporarily to 4.2% for 2011 only. The employer-portion will remain at 6.2%. The Social Security wage base remains at $106,800 for 2011. Medicare tax rates remain unchanged. The self-employment tax rate is temporarily reduced 2 percentage points to 13.3% for 2011 only.
Extension of Tax Credits
The Act extended many personal tax credits through 2012. These credits were either scheduled to expire or reverted back to previous levels in 2011.
The Estate Tax Credit was enhanced under the Act. The 2011 Estate Tax exempts the first $5.0 million of the estate and then imposes a 35% tax rate on the remainder. This is a significant change from the 2009 level of $3.5 million exemption and 45% tax rate. Further, without this provision, the estate exemption level would have reverted back to $1.0 million.
As can be seen, the 2010 Tax Relief Act provides many tax saving opportunities for individuals. Please contact us for further information regarding your personal tax situation.
Ensuring Financial Success for Your Business
Can you point your company in the direction of financial success, step on the gas, and then sit back and wait to arrive at your destination?
Not quite. You can't let your business run on autopilot and expect good results. Any business owner knows you need to make numerous adjustments along the way - decisions about pricing, hiring, investments, and so on.
So, how do you handle the array of questions facing you?
One way is through cost accounting.
Cost Accounting Helps You Make Informed Decisions
Cost accounting reports and determines the various costs associated with running your business. With cost accounting, you track the cost of all your business functions - raw materials, labor, inventory, and overhead, among others.
Cost accounting allows you to understand the following:
Is It Hard?
To monitor your company's costs with this method, you need to pay attention to the two types of costs in any business: fixed and variable.
Fixed costs don't fluctuate with changes in production or sales. They include:
Variable costs DO change with variations in production and sales. Variable costs include:
We Can Help
If you'd like to better understand the ins and outs of your business and create sound guidance for internal decision making, you might consider cost accounting.
And we can help. Allow us to evaluate your business from top to bottom and determine the real cost of each component. With that as a foundation, we can help you draft budgets, adjust pricing, keep an appropriate level of inventory, and much more. Give us a call today.
How to Get Paid on Time
With the current economic conditions, the collection of accounts receivables is becoming more and more of a challenge. Strengthening your collection procedures may allow you to shorten the aging days of your accounts receivables and improve collection rates.
The following suggestions can help your business tighten up its credit and collections policies and improve its cash flow. Although some of the tips discussed here may not be suitable for every business, they can serve as general guidelines to help give your company more financial stability.
Define Your Policy. Define and stick to concrete credit guidelines. Your sales force should not sell to customers who are not credit-worthy, or who have become delinquent. You should also clearly delineate what leeway sales people have to vary from these guidelines in attempting to attract customers.
Clearly Explain Your Payment Policy. Invoices should contain clear written information about how much time customers have to pay, and what will happen if they exceed those limits.
Follow Through on Your Stated Terms. If your policy stipulates that late payers will go into collection after 60 days, then you must stick to that policy. A member of your staff - but not a salesperson - should call all late payers and ask for payment. Accounts of those who exceed your payment deadlines should be penalized and/or sent into collection, if that is your stated policy.
Train Staff Appropriately. The person you designate to make calls to delinquent customers must be apprised of the seriousness and professionalism required for the task. Here is a suggested routine for calls to delinquent payers:
Personal Exemptions, Standard Deductions and Tax Brackets for 2011
In 2011, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation.
These inflation adjustments relate to eight tax provisions that were either modified or extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17. New dollar amounts affecting 2011 returns, filed by most taxpayers in early 2012, include the following:
Several tax benefits are unchanged in 2011. For example, the monthly limit on the value of qualified transportation benefits (parking, transit passes, etc.) provided by an employer to its employees, remains at $230.
IRS Announces 2011 Standard Mileage Rates
Beginning January 1, 2011, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) became:
The new rates for business, medical, and moving purposes are slightly higher than last year's. The business mileage rate was 50 cents in 2010. The medical and moving rate was 16.5 cents.
The mileage rates for 2011 reflect generally higher transportation costs compared to a year ago.
Let us know if you have questions about which driving activities you should monitor as tax year 2011 begins.
Receive a Faster Refund with Direct Deposit
The New Year has arrived, which means . . . it's tax time!
This year, do you want your refund faster? Have it deposited directly into your bank account. More taxpayers are choosing direct deposit as the way to receive their federal tax refunds. More than 61 million people had their tax refunds deposited directly into their bank accounts last year. It's the secure and convenient way to get money in your wallet faster.
You can also electronically direct your refund to multiple accounts. With the new "split refund" option, taxpayers can divide their refunds among as many as three checking or savings accounts and three different U.S. financial institutions. The split refund option, using Form 8888, is also available for paper returns.
To request direct deposit, just ask us.
Filing Requirements for Dependents
Whether a dependent has to file a return generally depends on the amount of the dependent's earned and unearned income and whether the dependent is married, is age 65 or older, or is blind.
Even if you are not legally required to file, you should file a federal tax return to get money back if any of the following apply:
Contact us for further information. We'll advise you about your particular situation.
Create a Financial Plan and Monitoring System
If you haven't already done so, prepare a financial plan and a budgeting system for monitoring your income, expenses, assets, and liabilities. The information you collect will enable you to start planning for retirement or other major life events. Use last year's information to establish a budget for the coming year.
Set Up an Effective Filing System
Set up a well-organized filing system for storing your important documents and records.
Prepare for Taxes
Start getting ready for preparing your tax return for the preceding year. As you receive Forms W-2 and 1099 and other tax documents, file them immediately. This will reduce time spent looking for them later.
Request a Social Security number for any child regardless of age who does not already have one.
Tax Due Dates for January 2011
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