Isaacson Isaacson Sheridan & Fountain, LLP
February 27, 2009
Greetings,
 
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This alert, from Desmond G. Sheridan, concerns estimated taxes for individuals with small businesses. 

This is part of a series of alerts about tax provisions in President Obama's stimulus bill, officially called the "American Recovery and Reinvestment Act of 2009."

Reduced Estimated Taxes in 2009 for Individuals with Small Businesses
 
 
The Recovery Act provides a break for "small business owners" making estimated payments of individual federal tax.  Here are the details:
 
Old Rule:  To the extent that tax isn't collected through withholding, taxpayers generally must make quarterly estimated payments of the "required annual payment." The required annual payment is the lesser of: (1) 90% of the tax shown on the return or (2) 100% of the tax shown on the preceding year's return (110% if adjusted gross income (AGI) for the preceding year exceeded $150,000).
 
New Rule:  The Recovery Act provides that for a tax year beginning in 2009, the required annual payment for individuals with small businesses is the lesser of (1) 90% of the tax shown on the return for the tax year, or (2) 90% of the tax shown for the preceding tax year. An individual qualifies for this relaxed estimated tax payment rule only if: AGI on preceding year's return is less than $500,000 ($250,000 if married filing separately); and at least 50% of the gross income shown on the previous year's return was from a small trade or business (one that employed no more than 500 people, on average, during the calendar year ending in or with the preceding tax year).
 
Important:  This rule only reduces the estimated tax payment requirement; it does not reduce the tax ultimately due for the year.
 
Example:  Small Business Owner paid $100,000 in federal tax in 2008.  Under old law, to be "safe," Small Business Owner would pay 2009 estimated tax of $110,000.  Under the new rule, Small Business Owner would pay only $90,000.  Note that on April 15, 2010 (when 2009 tax is due), Small Business Owner would have to pay the balance due of 2009 tax.
 
 
 
About the Writer
 
Desmond G. Sheridan is a partner in the Greensboro law firm of Isaacson Isaacson Sheridan & Fountain, LLP and is a certified public accountant.  His practice areas are business transactions, tax, corporations, limited liability companies, commercial real estate and estate planning.  Sheridan has served on the Board of Directors of the North Carolina Association of Certified Public Accountants and has been recognized as a North Carolina "Super Lawyer" and a member of the "Legal Elite" by Business North Carolina.  He has given numerous continuing education presentations to CPAs and attorneys.
 
 

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Isaacson Isaacson Sheridan & Fountain, LLP
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