Congress just passed another bill, which the President is expected to sign into law. It has a number of tax provisions, some of which may affect those of us who are using The DON Method of tax resistance.
Most exciting to me is that the bill permits sole proprietors to deduct their health insurance premiums as a business expense. Formerly such folks could take a deduction, but only after calculating business profits. The significance of this is that now the deduction reduces our profitability/income and therefore both our income tax and our SECA (social security & medicare) tax. The old way, it could reduce our income tax but we still were charged SECA on the income.
This makes sole proprietors more like employees whose employers provide health benefits. Those benefits don’t typically count as income and so neither the employer nor the employee gets charged taxes on them.
Unfortunately, Congress being Congress, it was only willing to enact this new provision temporarily. It officially applies only to the tax year. But now that the precedent has been established, it will probably get rolled into one of the yearly extenders packages.
Other provisions of the new bill:
- Raises the §179 depreciation limit from $250,000 to $500,000 and extends the 50% bonus depreciation option for another year.
- Allows new businesses to deduct $10,000 in start-up costs (that otherwise would have to be depreciated); the limit had been $5,000.
- Expands the favored tax treatment of C corporation capital gains.
- Allows some small business taxpayers to shift certain tax credits back into the five previous years and to use them even if the Alternative Minimum Tax would otherwise apply.
- Expands the new “if you pay $600 or more to anyone you have to file a 1099-MISC with the government about it” policy so that it applies to landlords.
