New Year’s Eve 2010 – Don’t Celebrate if You’re a Business Owner

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Wednesday, November 10, 2010

Dan Forbes, GoLocalProv Financial Expert

While most of the recent talk about taxes focuses on the impending 2011 increase in the personal income tax rate, business owners need to be just as wary. We have some tax credits that are set to expire. We have other changes that Congress is itching to push through before year’s end.

No one knows what the impact of the new GOP House will have or how the lame duck Congres will behave during the next 45 days.

Here are a few that could affect many Rhode Island business owners:

Small business expensing will be slashed and 50% expensing will disappear

Small businesses can normally expense equipment purchases up to $250,000. If current tax law stands, this gets cut to $25,000. Larger businesses can expense half of their purchases of equipment. In January of 2011, all of it will have to be “depreciated.”  The end of the “Research and Experimentation” Tax Credit

The business community has relied on this credit for almost 30 years, and it’s often the most criticized tax break afforded to business owners. Naysayers ask “What qualifies as research?”

Taxes on the certain S-Corp business structures
This is a scary proposition for those of us that have S-Corps. Currently, we’re allowed to take some earnings as profits or distributions, while also paying ourselves a salary. Profits aren't subject to employment taxes; wages are. Congress has proposed eliminating this tax benefit for professional service S-Corps., like law and health care practices.

Dan Forbes is a regular contributor on business financial issues. He can be reached at [email protected]