Four Tax Breaks for the Entrepreneur

Entrepreneurs have far more sophisticated needs for tax and retirement planning than any other type of client. Not only do these individuals have needs for themselves but, for their employees as well.

Here are 4 credits/deductions for the self-employed

1. Health Care Tax Credit - employers that pay at least half of their employees health care coverage can qualify for the credit. Employers with 10 or fewer full-time employees with an average annual wages of $25,000 or less will benefit most from the credit. The credit begins to phase out as the number of employees exceeds 10 and completely phases out at 25 employees with average annual wages of $50,000. The credit can be as much a 35% of the employers share of health-care costs. The credit is only available for a maximum of six years so, don't let this one slip by.
2. Self-Employed Health Insurance Deduction - self-employed persons can deduct health insurance premiums from gross income. This is a far better opportunity than the standard medical expense deduction found on Schedule A. If you itemize deductions, to the extent that your total medical deductions exceed 7.5% of your adjusted gross income, the excess will be the deductible on Schedule A. If your prospect uses the self-employed deduction, it won't matter whether or not they can itemize their deductions. Remember, this deduction is for premiums only. All other medical expenses must be deducted on Schedule A.
3. Section 179 Deduction - this deduction allows businesses to fully deduct the cost of qualifying equipment purchases in the year of purchase. For 2010 and 2011, purchases up to $500,000 qualify for the deduction. This deduction is like a double-edged sword. You can't have your cake and eat it too. If you take the full deduction for the purchase price, you don't get to depreciate it in future years. This deduction is a popular way to expense low-cost per unit purchases. It makes sense to completely deduct the $300 you paid for a license to QuickBooks in the year in which you purchased it rather than spread a small cost like this over future years.
4. Car/Truck Depreciation - in past years, Congress enacted regulations that significantly limited the depreciation on cars and trucks. For 2010, business owners that place new vehicles into service can deduct depreciation as much as $11,060 for a car and $11,160 for a light truck or van. The rules are different for SUVs and heavy pickup trucks but, still a great benefit compared to prior years.

This information is a free service of:

J.T. Hicks & Co., PA

Certified Public Accountants

470 S. Main St

Brewer, ME 04412

(207) 990-3127

Notice: always consult a tax professional before implementing any tax reduction strategy.

IRS CIRCULAR 230 DISCLOSURE: Tax advice contained in this communication (including any attachments) is neither intended nor written to be used, and cannot be used, to avoid penalties under the Internal Revenue Code or to promote, market or recommend to anyone a transaction or matter addressed in this communication.

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