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Ask The Experts
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Q: As a small-business owner, what tax changes should I be aware of when completing my 2011 tax forms?
A: There are a number of tax law changes you need to know about. Here's a brief look at a few of the major changes.
Self-Employed Health Insurance Deduction
Unfortunately, the payments that small-business owners make for health insurance premiums for themselves and their families won’t be as tax beneficial for 2011 tax returns as they were for 2010. The premiums paid for health insurance by the small-business owner will be still be deductible on Form 1040, but unlike in 2010, those same premium deductions will not be included on Schedule SE, Self-Employment Tax. That means net earnings from self-employment will be higher, and the related self-employment tax will be higher.
Payroll Tax Cut for 2011
Beginning Jan. 1, 2011, the employee’s portion of Social Security tax was decreased from 6.2 percent to 4.2 percent on the first $106,800 paid to the employee. For the small-business owner, the Social Security portion of self-employment tax was decreased from 12.4 percent to 10.4 percent, which was a significant benefit. Small-business owners will see the savings on Schedule SE. And all working Americans will see up to $2,000 in lower taxes.
Reporting of Employer Provided Health Care
The Affordable Care Act that was passed in 2010 required that employers begin reporting the cost of coverage under an employer-sponsored group health plan. That reporting was originally required beginning on Jan. 1, 2011, so that business owners would have to report those amounts for the year just ended. The good news is that more time has been granted. The reporting for 2011 is now voluntary for all employers and optional for 2012 for those employers with less than 250 employees. Check out Notice 2012-9, issued Jan. 3, 2012, for more detail.
Increase in Maximum Section 179 Deduction
The Small Business Jobs Act of 2010 increased the maximum allowable deduction under Code Section 179 from $250,000 to $500,000 for tax years beginning in 2010 and in 2011. This provision provides additional incentive for small-business owners who invest in new equipment for both years. At the same time, the limit for the phase out of the deduction was increased to $2,000,000 from $800,000.
Standard Mileage Rates Adjusted for 2011
Business owners using their personal vehicle for company business in 2011 can deduct 51 cents per mile on their 2011 tax return. The rate for medical miles driven is 19 cents per mile for 2011. Charitable miles use the rate of 14 cents per mile for 2011.
Deductible Contribution Limits for IRAs and Other Retirement Plans
Where an IRA contributor who is not covered by a workplace retirement plan is married to someone who is covered, the deduction is phased out if the couple’s income is between $169,000 and $179,000.
AMT Exemption Increased for 2011
For tax year 2011, the alternative minimum tax exemption for a married couple filing a joint return is $74,450, a $2,000 increase over 2010. For single filers, the exemption is $48,450, a $1,000 increase over 2010.
Find out more information about these and other tax law changes for the 2011 tax season at irs.gov.
Get Answers To Your Tax Questions
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