The 2011 tax season is in the air… In a last minute push through the door, the massive, bi-partisan legislation, the Tax Relief and Unemployment Insurance Reauthorization, and Job Creation Act of 2010, cleared Capital Hill. Now that the dust has settled a bit, there are several changes in the initiative that will effect those who own businesses. Here is a brief summary of these tax changes:
Employee payroll tax cut. The Social Security deduction from payroll will be 4.2 percent in 2011, down from 6.2 percent. The tax break will be available to both business owners and the self-employed.
Extension of business tax credits. Several business tax breaks were set to expire in 2009, such as the research credit and new-markets credit. They were renewed under the new legislation for 2010 and 2011.
Bonus depreciation. An extension was granted for 100 percent expensing of qualified business capital investments placed into service between Sept. 8, 2010 and Dec. 31, 2011.
Health insurance premium tax credits. Businesses employing fewer than 25 workers earning an average of less than $50,000 annually can qualify for a tax credit of up to 35 percent (based on a sliding scale) of their health insurance premium costs.
Work opportunity credit. This tax credit is for new hires that fall within one of the twelve targeted groups of people who have barriers to employment. The credit was supposed to expire in August 2011, but has now been extended through December for all the targeted groups except unemployed veterans and at-risk youth.
Sale of stock exemption. The full exemption of gain from sale of stock in a small business was extended through 2011.
Aside from the tax breaks mentioned above, two personal tax extensions may also affect the owners of smaller businesses.
Alternative minimum tax. Under the new legislation, the current AMT limits were extended for 2010 and 2011. It will exempt as many as 21 million households from having to pay the higher AMT rates.
Personal tax rates. The Bush-era tax cuts were extended for all income levels through 2012.