The $858 billion package of tax cuts and unemployment benefits, which President Obama has signed into law, has a number of provisions affecting business owners.
So how will the new law affect you? Here are four things laundry owners may want to consider:
1. Continue to use conventional year-end tax planning strategies. Businesses using the cash method of accounting are usually advised to shift income to the following year while accelerating deductions into the current year as a way to minimize taxes for the current year. With the extension of the Bush tax cuts for all taxpayers for 2011 and 2012, this tax strategy should remain valuable this year and next.
2. Make plans to purchase equipment. The new law creates an unlimited bonus depreciation rule for the cost of equipment and machinery bought and placed in service after Sept. 8, 2010 (and before January 1, 2012). The bonus depreciation applies not only to equipment and machinery, but also to off-the-shelf software and qualified leasehold, restaurant and retail improvements.
However, there continues to be a dollar limit on the purchase of cars, light trucks and vans used for business. The dollar limit set by the IRS on depreciation for a car purchased in 2010 is $3,060 ($3,160 for a light truck or van); if it's new rather than pre-owned, the addition of $8,000 (an amount set by law) means the limit for a car is $11,060 ($11,160) for a light truck or van). New limits, which are set by the IRS, will be announced for 2011.
3. Decide whether to hire new attendants. One of the key reasons cited by many small-business owners for not hiring workers at this time has been uncertainty about tax rules and other matters. With the top tax rate for individuals maintained at 35 percent for 2011 and 2012, along with other current tax rules, owners may feel more comfortable about taking on new employees. Owners have certainty about their taxes – at least for 2011 and 2012.
Those who operate businesses in certain economically distressed areas may be entitled to a tax credit for hiring. The empowerment zone employment credit has been extended for 2010 and 2011.
4. Review your estate plan. Business owners often are concerned that their demise will be the downfall of their companies. Their concern stems not so much from worry that the loss of their talent will adversely affect the company, but more that the estate tax will drain valuable resources from the family and could even result in a forced sale of the business. The new tax deal ends such worries for owners with estates no greater than $5 million. Even if a business owner's estate is worth more than this amount, the tax rate is only 35 percent instead of the 55 percent that had been slated to apply in 2011 in the absence of the new tax law plan. Nonetheless, the value of businesses isn't stagnant; a company worth $2.5 million today could be worth 10 times more in a few years, requiring estate planning for the business owner.
In addition, the provision addresses the following items:
Payroll Taxes: Reduces for two years the employee side of Social Security payroll taxes by 2 points from 6.2 percent to 4.2 percent. This will not impact the employer side of payroll taxes.
Capital Gains: Extends for two years the top rate of 15 percent on capital gains and dividends.
AMT: Implements a two-year fix for the AMT to prevent as many as 21 million households from being hit by it.
Expensing: Extends expanded Section 179 expensing allowing businesses to fully deduct the cost certain equipment.
Unemployment Insurance: Extends for 13 months, through the end of 2011, unemployment insurance.