There are various new tax relief credits and deductions that are available to small businesses. These are an ideal opportunity for any small business to reduce their tax liabilities. Some of these available tax relief options are explained here:
Small Business Healthcare Tax Relief
One of the new and major tax credits is the Small Business Healthcare Tax Relief. This tax credit is given to small businesses and small charities that employ a fair number of low income earning employees. The credit allows for such qualifying organizations to receive a tax break for the premiums that they have paid for their employee’s Healthcare. This tax credit runs from 2010 to 2013. The qualifying tax credit amount is a maximum of 35% of the premiums paid in a tax year for small businesses and a maximum of 25% for qualifying tax exempt nonprofit organizations. However, for the two qualifying years after 2013, the tax credit will be a maximum of 35% for qualifying nonprofit organizations and 50% for qualifying small business. The credit is set such that the smaller businesses and nonprofits with less than 10 full time employees and paying a wage-average of $25,000.00 annually get the greatest tax credit (the credit reduces for larger businesses and nonprofit organizations). For a small business or nonprofit organizations to qualify for this Healthcare tax credit, they must have a maximum of 24 full time employees and must also have a maximum annual average wage of $49,999.00.
Tax Deduction for Healthcare Cost of Self-Employed Individuals
The tax deduction for self-employed individuals who pay for their own Healthcare is another new tax relief that takes effect in 2011. The tax relief is part of the Small Business Jobs Act of 2010. Under this relief, the self-employed individual may reduce the taxable income for a given tax year with the premiums paid for his or her healthcare. The Healthcare coverage needs to be registered under the business name of the self-employed.
Tax Relief on Capital Expenditure for Small Businesses
This tax relief enables small businesses to claim the expense costs incurred in purchasing certain business assets under IRS Schedule 179-Property. Ideally, such expenses should be depreciated over several years. However, with this tax relief, a business can claim expenses up to $500,000.00 of the first $2 million of the cost of the property. The tax relief applies for both tax years 2010 and 2011. Come 2012, the allowed maximum that a business can deduct for capital expenditure will come down to $125,000.00.
Bonus Depreciation Tax Relief
Besides the 179-property relief, a small business can also deduct a bonus depreciation of 100% of the cost of qualifying assets if such assets were purchased after September 8, 2010 and put into use before January 1, 2011
Limitation on Car Expenditure
For business cars, there is a cap on the total amount of deductions that you can place both under the 179- Property tax relief and the bonus depreciation relief. For passenger cars, the total amount of deductions you can make in the first year of purchase is $11,060.00 and if you did not deduct the bonus depreciation relief, it goes down to $3,060.00. For trucks and vans, the maximum amount that you can deduct after making the bonus depreciation deduction is $11,160.00 and if you did not take the bonus depreciation deduction, you can deduct a maximum of $3,160.00 on the first year of purchase.
There are different pension plans in action, and the plan that will be applicable to you would be dependent on a number of factors. At first, the choices and options may appear mind-boggling and overwhelming to you, but once you make up your mind to give some time to these tax relief schemes, you will be amazed to look at the sheer number of choices you have. For instance;
There are two types of pension plans; company pension plans and personal pension plans (PPP).
In company pension plans, you don’t have to worry about anything; your contributions for the pension will be automatically deducted, and tax deductions would be made in the similar manner. However, in personal pension plans, things are a little bit complicated. Let ‘s try to understand personal pension plans (PPP) in somewhat more detail.
How personal pension plans work?
If you are using a personal pension plan, then the relief that you will get would be depend on a number of factors. One of the most important factors is your tax payer status. That simply means, the PPP will give you tax relief depending on whether you are a high rate tax payer or a basic rate tax payer.
If you are one of the basic rate tax payers at 20% and make contributions to the personal plan, then most of the tax relief that you will get will be dependent on your pension provider. They will help you to claim the tax back from the relevant office. For instance, if you are paying the basic tax rate of 20%, you will get 20% tax back on your contributions. That simply means for every £100 you will get £120 in your pension fund. Similarly, if you are a higher rate tax payer at 40%, you will get a tax relief of 40%. However, the tax relief is available for only that amount of income that is taxed at 40%.
It’s also worth mentioning here that the tax relief you will get is claimed differently. While the initial 20% would be claimed from HMRC (Her Majesties Revenue and Customs), but the other 20% you have to claim from your tax office by showing them all the evidences of the payments that you have made in the pension relief scheme.
If you are a non tax payer, you can still get the tax relief by making these pension contributions. However, there is a limit of £2,880 a year, but you will still get the basic tax relief of 20% on your contributions. It simply means that if you invest £2880, your invested money will automatically be increased to £3,600.
Pension tax relief limits
One of the most important things that you should always remember to save yourself from tax penalties is that you should always be aware of the limitations while making your contributions. If you make contributions under the annual allowance, then you can get as much as 100 % tax relief on your contributions. You are eligible for 100% tax relief if you have paid the contributions before the age of 75 and all contributions are under annual allowance.
It’s important to note here that for the year of 2010-2011, the tax allowance is £255,000, as well as for the year of 2009-2010, it was £245,000. Also, if you have made contributions above the annual allowance and a separate life-time allowance; you may have to face tax penalties. There are some changes in the 2009 Budget. As from April 2011 the amount of tax relief will taper if your income is £150,000 or more. These changes are introduced on 22 April 2009, because it came to the notice of the tax department that some people were making extra pension contributions, and they wanted to prevent them from receiving full tax relief before April 2011.
No matter which pension investment scheme you choose, but you cannot take away the fact that this is one of the most important things you do for your retirement planning and also for getting a substantial amount of tax relief.
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