| Are you getting ready to prepare your 2008 small | | | | be sure to consult with your accountant or read up on |
| business income tax returns? Here are three important | | | | it yourself (IRS Publication 946, "How To Depreciate |
| changes you don't want to miss. Two of them put | | | | Property", is a good place to start for free information |
| more money in your pocket; the third gives more | | | | on the topic). For example, there has always been a |
| money to Uncle Sam. | | | | limit on the amount of the Section 179 deduction. The |
| Mileage Rate Increase. | | | | limit has been gradually increasing over the past |
| Here's a good one. If you use the Mileage Method to | | | | several years, from $100,000 in 2003 to $125,000 in |
| calculate your vehicle deduction, the IRS has done you | | | | 2007. The 2008 limit is a whopping $250,000, so there's |
| a favor by increasing the mileage rate. In 2007, the | | | | a pretty good chance you don't have to do |
| rate was 48.5 cents per mile. Effective January 1, | | | | depreciation on your return again this year. |
| 2008, the rate was increased to 50.5 cents per mile. | | | | Self-Employment Tax Increase. |
| On July 1, 2008, the rate was increased again, to 58.5 | | | | This item is not so good. If your business is a sole |
| cents per mile. | | | | proprietorship (i.e. you file Schedule C) and your profit is |
| Because there are two rates for 2008, the most | | | | at least $400, you must pay the dreaded |
| accurate way to calculate your mileage deduction is to | | | | self-employment tax of 15.3% on that profit. This 15.3% |
| do two calculations: January-June miles TIMES .505 | | | | tax is made up of two parts: social security tax of |
| PLUS July-December miles TIMES .585. | | | | 12.4% and Medicare tax of 2.9%. You must pay the |
| If you did a good job of tracking your mileage during | | | | Medicare tax on all your profit, regardless of the |
| the year, this calculation should be no problem. You just | | | | amount. But there is a limit to the profit amount subject |
| add up your mileage for the first six months; then do | | | | to the social security tax. In 2007, that limit was |
| the same for your mileage for the last six months. | | | | $97,500. In 2008, that limit increased to $102,000. (And |
| Section 179 Increase. | | | | just so you know, the 2009 limit has already been |
| More good news. When it comes to deducting | | | | increased to $106,800). |
| business equipment (aka "fixed assets" or "capital | | | | These rules about the social security tax portion of the |
| assets"), Section 179 is the small business owner's best | | | | self-employment tax also apply to employee wages |
| friend. It allows you to forget about all those | | | | and salaries. If your business is a corporation and you |
| complicated depreciation rules and simply deduct 100% | | | | are paid as an employee of the corporation, the |
| of the asset's cost in the year of purchase, just like | | | | amount of compensation subject to social security tax |
| your other operating expenses like office supplies, | | | | has also increased from $97,500 in 2007 to $102,000 in |
| utilities, wages, etc. | | | | 2008 (and to $106,800 in 2009). So all business owners, |
| There have always been several critical limitations and | | | | regardless of entity type, are affected by this change, |
| restrictions to the Section 179 expense deduction, so | | | | which in effect, is a tax increase. |