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Small Business Health Care Tax Credit

Another New Tax law change that benefits small business is the Small Business Health Care Tax Credit which takes effect now.

In simple terms this will allow some small businesses who pay for health insurance for their employees to save on taxes. While not a benefit to all small businesses it will help some and you should know about it.

Here it is straight from the IRS:

Have you been using Tax Deposit Coupons – Form 8109?

The Bad News is that the IRS is requiring businesses that could previously make Federal Tax Deposits by coupon to now use other methods.

The Good News - for those that find the web based and other systems too complicated and time consuming - is that you can make your deposits by telephone.

Taxpayers affected by late tax breaks should wait to file

Some people who are affected by the last minute tax law changes or who itemize deductions will have to wait until mid to late February to file to give the IRS time to adjust.

Here is the list of areas with changes that will require waiting:

First year depreciation dedution increased to 500K

Good news for business owners who bought equipment in 2010 or want to buy new equipment in 2011 and want to expense it fast. The Sec 179 limit was increased to 500K for 2010 and 2011 by the The Small Business Jobs Act of 2010. This can really help defer taxes for businesses that are otherwise profitable even though they spent on depreciable equipment.

Here is what the IRS said about the new law:

1099′s – New Law changes requirements beginning in 2012

The burden placed on small businesses and start-ups just keeps getting higher and higher.

Beginning in 2012 businesses will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year. These changes will cause businesses to have to track many more of their transactions and issue many more forms – if they stand.

Free Tax Preparation Assistance is available for some people

This from the IRS: Individuals making $49,000 or less can use the Volunteer Income Tax Assistance program for free tax preparation and, in many cases, free electronic filing. Individuals age 60 and older can take advantage of free tax counseling and basic income tax preparation through Tax Counseling for the Elderly.

Health Insurance Deduction now reduces taxes even more.

A new law change effective for 2010 will allow deduction of Health Insurance Premiums from Self Employment (SE) Tax liability as well as Income Tax liability. Small business owners have been able to reduce their income tax liability previously but have still been hit with 15.3% SE Tax on net income and no way to reduce it. This law change will allow for some relief from the SE Taxes as well. The deduction is taken on line 3 of the Form SE and essentially results in a 15.3% discount on health insurance premiums that were paid for the year.

Get Ready for Income Taxes

If you get it in the mail and it says “Important Tax Papers Enclosed” then it is best that we see and not just go by your notes. The reason is that the IRS got a copy of this info too and their computers will look at your return and the info they received and try to make them match. So to avoid letters from the IRS it’s best if we see these documents and get these numbers exactly right. So grab a big envelope and save them to send in with your other tax info!

Changes to Federal Payroll Rates

The amount of the Social Security deduction has changed for 2011 for the first time in many years. The employee portion that is withheld for Social Security has been reduced by 2% so it is now 4.20% The employee portion of Medicare remains the same at 1.45% That means that the total deduction for the employee FICA – which combines both the Social Security and Medicare deduction is now 5.65% not 7.65% Click here To download the 2011 IRS Publication 15 .

California Withholding Changes

California State Disability (SDI) Rate is increased this year to – 1.2%.

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