How Will Obama’s Tax Plan Affect Self Employed Americans?
November 8, 2008 · Print This Article
Self employed taxpayers get the honor of paying the self employment tax on top of their regular income tax. This can be quite a burden, especially for new business owners.
There has been some indication that there will be tax relief for small business owners in President-Elect Obama’s new tax plan.
So how will the new tax plan affect you, as a self employed individual (or couple)?
According to BarackObama.com, the new tax plan will include:
A $1,000 “Making Work Pay” Tax Credit. For 95 percent of workers and their families—150 million workers overall—the “Making Work Pay” credit will provide a refundable tax cut of $500 for workers or $1,000 for working couples. This credit will benefit over 15 million self employed workers and for 10 million low-income Americans, will completely eliminate their federal income taxes.
Since this is a refundable tax credit, this credit will help reduce your self employment tax in addition to your regular tax. This is good news, as many of the tax credits available now are non-refundable, and therefore don’t help reduce the self employment tax, which is the largest burden for many sole proprietors.
Expanding Retirement Savings Incentives. To increase retirement security, Barack Obama will ensure that every American worker has the option of saving in an easy, automatic pension account and will expand the existing Savers Credit to match 50 percent of the first $1,000 of savings for families that earn under $75,000. He will also make the Savers Credit fully refundable.
This is also good for self employed people, since self employed people generally give up 401K plans and company matches when they start their own business. This will give self employed people greater incentive to start their own retirement plans.
Health Care Tax Credits. Obama’s health plan centers around tax credits that, together with his other proposals to expand pooling options and ease enrollment, will ensure that health insurance is available and affordable for all families.
I can’t believe I’m admitting this, but when I first started my business, I did not have health insurance. I chose to go without for about six months while I worked to build my business. I’m not alone in this regard; I know many, many self employed individuals (and families) who don’t have health insurance because it’s just too expensive to purchase it on their own (another employer sponsored benefit given up to pursue the American Dream). So, while I’m a little concerned about “expanding pooling options” and some of the other changes that have been discussed, I’m all for a tax credit that would make health insurance more affordable for those who don’t have it through an employer.
Eliminating Capital Gains Taxes for Entrepreneurs and Investors in Small Business. Barack Obama understands that small businesses are the engines of our economy, and he will eliminate all capital gains taxes on investments in small and start up firms.
I don’t understand this one at all… As a small business owner, my biggest concern is self employment and income tax, not capital gains tax. If any Obama tax advisors just happen to be reading this, we need deductions and credits to reduce our self employment and income tax, not capital gains tax!
Cutting Corporate Tax Rates for Firms that Create Jobs in America. Barack Obama will repeal tax breaks and loopholes that reward corporations that retain their earnings overseas, and will use those savings to lower corporate tax rates for companies that expand or start operations in the United States.
Not much to say about this one… any tax cut that will help keep jobs in America is good for the United States.
Offering a Small Business Healthcare Tax Credit: To help small businesses compete in the global economy while still providing quality health insurance, Barack Obama will offer a new refundable 50 percent health tax credit on employee premiums paid by employers. His comprehensive healthcare plan will relieve health costs for all firms by bringing down national healthcare costs by $2,500 per family, annually.
Given the number of companies that are cutting back or eliminating health care benefits for their employees, this tax credit is definitely a positive. Hopefully the definition of “employee” includes owner-employees in S corporations. That would be sweet!
Well, I hope you got some positive things out of this post. Just about every blog post and article I read regarding Obama’s tax plan was negative, but after reading the details of the Obama tax plan, I can see at least a few positive changes for small business owners in the tax plan that Obama proposes.
Subscribe to EbizTaxTips.com
Attn: Online Business Owners! Do you want to learn how to minimize your online business taxes?
My free report '5 Tax Saving Tips for Ebiz Owners' includes tips to help you get all the deductions and credits you're entitled to, so you don't overpay Uncle Sam!
Hi! Great, informative article!
About the capital gains tax, if he eliminated that it would be incredibly helpful to me as a small business owner. My husband and I run a real estate investing business, and if we could flip a house and not pay capital gains tax, that would do WONDERS for the business.
Sheila
Thanks for the comment Sheila. Yes, I can see how a cut in capital gains tax for small business owners would help you!
I just wish there was a (broader) tax cut in the plan that would help non-real estate small business owners, like reducing the self employment tax. A capital gains tax cut won’t help the majority of self employed people, unfortunately.
Kristine,
Thanks so much for the overview. I just hope that he can implement at least half of the items in his plan. I’m so excited to see what is in store for us. How does it get any better than this?!
LOL, love your enthusiasm Maribeth! Unfortunately, I think most people do not share that enthusiasm. When I was researching this post I found a LOT more negative articles/blog posts about the Obama tax plan than positive.
Kristine,
Great article! Kudos for writing something positive about how the tax plan will help people. Considering Obama received 52.3% of the popular vote and McCain only received 46.2%, and Obama won 365 electoral votes to McCain’s 173, I believe he has a clear mandate and you’re just hearing from the noisy, but quite small, right-wingers who have a negative opinion and want it shouted far and wide.
Besides, most people write about controversy and negativity because it makes better news. Nobody seems to want to tune in to “things are going great, here’s all the positive news for today”.
I think you’re just seeing a media and blog bias toward the far right. They will never be convinced about the Obama tax plan even as money flows into their own bank accounts. Those who continue to listen to Rush, O’Reilly and Hannity will never be swayed. They are sheep and will remain sheep.
Denial ain’t just a river in Egypt. Denial has gotten the Republican party off this planet and I’m not sure they will ever come back down to Earth, let alone reality. I’m one of those people who has contemplated leaving the Republican Party since W stole the 2000 election. After all the shenanigans they pulled in 2004 and this year, I’ve had enough, and that party in no way represents what I believe in. As soon as our runoff elections are over in December, I’m changing my party affiliation.
Sherri
I like to wait and see what actually passes. Dreaming is great and appreciated — reality is what one lives with on a day-to-day basis.
We can hope .. but, I guess my stand is: “we’ll see”
[...] an earlier post, I asked ‘How Will Obama’s Tax Plan Affect Self Employed Americans?’. Well, more details are emerging as Obama proposes $300 Billion in tax [...]