New tax laws (Sponsored by Intervet/Schering-Plough Animal Health)
The Social Security wage base— the maximum amount of earnings subject to the Social Security or Self Employment Tax—increased in 2009. Tax will be assessed on the first $106,800 at a rate of 6.2 percent. The government will continue to assess Medicare tax at a rate of 1.45 percent on all wages earned. If you are incorporated, the corporation matches the rate. If you are self-employed, you essentially pay both parts of the payroll taxes that are due on all income up to the earnings limit.
A major reporting change for 2008 was that health insurance premiums paid on behalf of S Corporation shareholders must be reported on the W-2 form in order to be deducted by that individual. This means that if you reported the premiums as income and then deducted them on your personal income tax return, you're good with the IRS. In previous years, this would have been handled by not deducting them on your corporate return, hence raising your net income and deducting it on your personal return. While this sounds like splitting hairs, the IRS takes it very seriously. If you do not report the premiums you paid on your W-2, be prepared to hear from the IRS at some point. There is no change for those of you who report as sole proprietors. If you missed it for 2008, get in touch with whoever does your payroll and get it corrected. Now is the time to make sure the correct reporting is in place for 2009.The deferral rates for 401K and SIMPLE plans are also an item of interest, as they have been increased . For 2009 you can defer up to $16,500 to your 401K and $11,500 to your SIMPLE plans. For those over 50, you can increase your 401K deferral by $5,500 and SIMPLE plan deferral by $2,500. Contributions to IRAs remain at $5,000 if under 50 and $6,000 if over 50.
Mileage reimbursement will remain at $0.55 per mile for 2009. If, for example, you're using a truck solely for farm calls, you don't have to substantiate the vehicle's business usage. For all others, a log is necessary to substantiate business usage.
One not-so-pleasant change to the tax rules affects you if you have children who are subject to the Kiddie Tax. Essentially, this tax takes your child's unearned income—mainly dividends and interest—and taxes it at your rate. In previous years, this stopped when children reached the age of 14. The age was increased to 18 in 2006. For 2008, children under the age of 24 (if they are a student and you provide their support) will have their unearned income taxed at your marginal rate.
Section 179 on depreciation is probably going to be with us for many years to come. The upper limit, which was $250,000 for 2008, was set to revert back to $133,000 for 2009, but will probably stay at $250,000 for 2009. This works quite well as an economic stimulus tool. Anything that encourages business owners to purchase large ticket items has been shown time and time again to get the money where it is most needed with the least government interference.
One option being discussed by Rep. Charles B. Rangel (D-N.Y.), Chairman of the House Ways and Means committee, would cause a significant increase in the cost of doing business if you operate as an S corporation. Rep. Rangel is proposing that all income reported by an S corporation be subject to payroll taxes as well as income taxes, as is currently the case. That is an increase in your tax burden of more than 15 percent. If you operate as an LLC or a sole proprietor, your practice's income is already being taxed for payroll tax purposes. So you need to pay attention to what is going on in that committee and make your views known to your representatives.
As business owners, wage earners, and taxpayers, we need to pay attention to what our elected officials are doing in 2009.
Elise Lacher is a consultant with Strategic Veterinary Consulting Inc. in Seminole, Fla.