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How Will the Tax Cuts Affect My Business Taxes in 2011?

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Question: How Will the Tax Cuts Affect My Business Taxes in 2011?

President Obama has announced a deal to preserve the Bush tax cuts into 2011 for all taxpayers. The legislation extending the tax cuts also includes some other provisions to stimulate the U.S. economy. The President reviewed the agreement in a press conference on December 7 (reprinted here as President Obama's statement). Here is how this proposed legislation will affect your business.

Answer:

Several provisions in this deal will be very helpful to small businesses going into 2011:.

Business and Personal Income Tax Rates Unchanged
The current tax rates for 2010 will stay the same in 2011, with the top corporate tax rate at 35%. So you won't have to worry about tax rates when considering year-end timing of income and expenses.

Expanded Depreciation Deductions
The Section 179 deduction will be expanded to allow businesses "to completely write off their investments next year." If you are considering buying a business vehicle or equipment, you should probably wait until 2011. But check with your tax advisor before you make any decisions.

Capital Gains Rate Unchanged
The capital gains tax rate of 15% will not be increased in 2011. If passed, this provision will definitely ease the anxiety of small businesses about investments, making them more likely to invest in capital assets.

One provision affects your business but doesn't help. A 2% cut in the employee portion of Social Security (OASDI) taxes won't affect businesses (the rate will decrease from 6.2% to 4.2%). Your business will still be required to pay 6.2% for their portion of this tax.

 

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