The world is changing and you can’t go anywhere without hearing “Tax the rich make them pay their fair share.” The problem is sometimes these policies do not just affect those they take aim at, but can sometimes hurt the small business owner unintentionally. Getting lost in the discussion are the special taxes already implemented at certain high income tax payers in addition to regular federal income tax. These tax payers can range in profession but include most small business owners. They target earned income and investment income and understanding what you could be paying in taxes is key to the slim margins that small business owners work with.
For those who file with an income over 250k for married persons, 200 for singles and 125k for married persons filing separately there is a .9% tax on wages and net earnings from self-employment. These limits are not adjusted for inflation and as the economy continues in these hard times as inflation raises more and more small business owners will see this tax for the first time. If the limits for this tax had been adjusted for inflation, we would see filings be 300k for married persons, 250k for singles and 156k for married persons filing separately.
There is an additional tax for Medicare on earned income that went into effect in 2013. It includes a tax of 1.45% for employees and 2.9% for self employed individuals. For self employed individuals there is no deduction for one-half of the Medicare tax. While the basic Medicare tax is levied on each spouses earning, the additional Medicare tax is on their combined earnings. One thing to note is that employers do not pay the additional Medicare tax that is paid solely by the individual tax payer. Taxes are beginning to mount for small business owners of higher tax brackets and even those who didn’t see themselves at those brackets because of inflation. Make sure you have the knowledge and experience this tax season by calling us today.