5 Ways the Senate’s Tax Plan Helps Business Owners
Posted on Thu, Dec 16, 2010 @ 10:35 AM
Business owners will benefit personally and professionally from the tax bill approved by the U.S. Senate.
From lower rates for individuals to incentives to invest in their companies, business owners could reduce their tax liabilities in 2010 and beyond.
The following tax breaks would be most helpful.
Extension of Bush tax cuts
The reduced personal income tax rates that were implemented under former President George W. Bush will remain in place for all taxpayers in 2011 and 2012. Rates were set to rise on Jan. 1 and Democrats had tried to restrict an extension of the lower rates to households with incomes of less than $250,000.
Capital gains and dividends
Increases in the tax rates for capital gains and dividends that were to take effect on Jan. 1 have been postponed as well. This alleviates the need for investors to sell shares of companies now rather than pay a higher bill next year. It also reduces pressure to sell businesses to lessen tax liabilities, perhaps allowing sellers to negotiate better terms.
Estate tax
Fewer business owners have to worry about leaving behind a large tax bill if they live into 2011. After lapsing in 2010, the estate tax had been set to return in 2011 with an exemption of $1 million and a maximum rate of 55 percent. Instead, there will be a $5 million exemption and a top rate of 35 percent for the next two years.
The National Federation of Independent Business, a small-business advocacy group welcomed the more favorable terms, in a statement by Senior Vice President Susan Eckerly.
“Not only does this framework provide certainty for the 75 percent of business owners who file their taxes as individuals, but it also includes a workable estate tax compromise. The estate tax disproportionately harms family businesses, levying a tax on the business not just at death but in the years planning and preparing in advance.”
Relief for individuals
The $858 billion tax bill extends several key measures for individuals while implementing others. Among them, according to The New York Times:
“It continues a college tuition credit for some families, an expanded child tax credit and the earned income tax credit. It also includes a two-year adjustment to the Alternative Minimum Tax to prevent as many as 21 million more households from being hit by it. …”
As employees of their companies, business owners also will benefit from a temporary reduction in taxes paid by workers. According to The New York Times:
"The one-year payroll tax cut would reduce to 4.2 percent the 6.2 percent Social Security tax levied on income up to $106,800. For a family with $50,000 in annual income, the cut would yield tax savings of about $1,000. For a worker paying the maximum tax, it would provide savings of $2,136."
Business provisions
Tax breaks for businesses could help owners increase profits at their companies. The Wall Street Journal noted:
“The bill also allows businesses to write off 100% of equipment purchases made after Sept. 8, 2010, but before Jan. 1, 2012. ... And it renews a host of expired tax breaks for businesses, including a tax break on banks' overseas income, quicker depreciation for restaurant improvements and the 45-cent tax credit for ethanol blenders.”
Companies in sectors such technology, agriculture and energy, will benefit from $55 billion in industry-specific credits or reductions, according to The Washington Post.
Unfinished business
Though the tax plan cleared the Senate by a large margin, 81-19, its final structure is still far from determined, as it now goes to the House of Representatives.
House Democrats have expressed frustration with many of the bill’s provisions, particularly regarding the estate tax. A prolonged debate or significant changes that prevent the same legislation from being passed in both chambers could leave the nation’s tax code in limbo until next year, when a new Congress convenes, under Republican leadership.
If the debate lingers into 2011, the benefits for business owners will be uncertain.
Follow our blog for ongoing coverage of taxes for business owners.
