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Business Tax Relief for 2010 and 2011

After much arguing and fighting, the new tax legislation is finally in place. The Bush tax cuts are extended, which is a really good thing for dual-income, married-filing-jointly households, and in addition to extending the Bush tax cuts, a couple of items passed will provide some much needed business tax relief for the self-employed for 2010 and 2011.

One cool change applicable to the 2010 tax-filing year is that your monthly health insurance premiums are deductible on your Schedule C with your other business expenses instead of on Form 1040. The big advantage to taking the deduction on Schedule C is that it reduces your business income prior to the calculation of self-employment tax. The self-employment tax rate is 15.3 percent, so multiply the total of your monthly health insurance premiums by the self-employment tax rate to figure your tax savings. Note: This is not a permanent change, so be certain to check in future tax-filing periods to see if the deduction is still allowed.

The second major item of business tax relief is also a change to self-employment tax. For the 2011 tax year, the self-employment tax rate will decrease by 2 percent. That lowers the self-employment tax rate to 13.3 percent for the 2011 tax year. Make sure you incorporate this change in self-employment tax rate when calculating your quarterly estimated tax payments for the 2011 tax year. Note: This cut in tax is applicable to the social security portion of the self-employment tax rate and will also be given to employees. If you are also employed with another company, you will receive a 2 percent reduction in your social security tax withholdings on your payroll checks. The decrease in the social security tax withholdings will not affect your social security benefits at retirement.

Part of the extension of the Bush tax cuts is maintaining the tax rate schedules at the same income ranges as before. Along with this freeze on tax rate schedules, the standard deduction and personal exemptions rates will also remain the same. The freeze on tax rate schedules combined with the monthly health insurance deduction change for 2010 and the drop in self-employment tax rate for 2011 should provide self-employed individuals with a little much-needed business tax relief.