Updated Information for 2014 Section 179 Deduction Limits for Small Business Taxes has been published.
Business tax deductions are important in order to offset high business taxes levied against small business owners and entrepreneurs. Business owners, particularly, single proprietors are often hit with high tax bills because of the Self Employment Taxes.
Self-employment taxes, or SE Tax, is so high because it includes taxes that would usually be paid by the employer. As an entrepreneur, the small business owner gets a double taxation whammy on things like Social Security taxes. The standard worker with a wage paying job at an employer pays 7.5% in Social Security Taxes. The employer withholds this amount from the employee’s paycheck. The employer also pays 7.5% in SS taxes.
The total Social Security Taxes adds up to a whopping 15%. A small business owner that files as a sole-proprietor is on the hook for the whole thing! That means that an entrepreneur pays 15% in taxes for Social Security on top of the regular Federal Income Taxes that they owe. For a successful small business owner with a high-income that puts him in the 30% tax bracket, that adds up to an astounding 45% Income Tax rate. And, that is before things like Medicare taxes, state taxes, and local taxes.
In other words, a small business owner can pay 50% or more very easily in taxes!
The only defense against such barbaric tax-rates is to take as many business tax deductions as possible. By doing so, the business lowers its profit for tax purposes, and therefore passes along less income to the taxpaying business owner on his Schedule C – Profit and Loss From Business Operations.
As an aside, this financial dance with the IRS is what causes legitimate, successful business owners to have trouble qualifying for mortgages or other loans. By the time these deductions are all taken, the income the business appears to earn can be substantially lower than its actual profits as they apply to the business owner’s bank account. This is why stated-income mortgages are so important for the self-employed. Unfortunately, scumbag mortgage brokers uses these mortgages to get unqualified borrowers into mortgages for houses that they couldn’t afford. These days, stated-income mortgages are all but dead thanks to these crooks.
Unfortunately, racking up sizable tax deductions by buying office supplies like paper, toner, and ink cartridges is difficult, even when paying the criminally overpriced rate for brand name printer ink and toner.
2009 Section 179 Limits Business Tax Deduction
The savior for many small business owners is IRS Section 179. Section 179 allows for a certain amount of business expenses to be deducted immediately, instead of depreciated over several years. This is particularly useful for out of date tax depreciation limits like those on computers. Imagine how laughable it is to deduct a netbook purchase over five years. Odds are a netbook will not last 5-years. Even better odds are that it won’t be “useful” in 5-years regardless of the what the IRS says.
With a Section 179 deduction, the small business owner deducts $200 in the year the netbook was purchased, instead of deducting $40 per year for five years.
Maximizing Section 179 Tax Deductions is a critical personal finance skill for any entrepreneur. Keep an eye here for more information on income tax deductions and paying Federal Income Taxes in the near future.