SACRAMENTO, Calif. ( 1/31/11)--Small business owners may be eligible for several new tax breaks designed to help take the sting out of filing, thanks to four pieces of legislation passed in 2010 (Central Valley Business Times
Jan. 24). New legislation--which created or expanded deductions and credits for small businesses as well as for self-employed individuals--includes the Patient Protection and Affordable Care Act of 2010; the Health Care and Education Reconciliation Act of 2010; the Small Business Jobs Act of 2010; and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. When preparing 2010 tax returns, look for credits and deductions mainly in the areas of capital investment and health insurance costs. Here’s an overview:
* Equipment deduction. Now, businesses can choose to treat the cost of certain property as an expense and deduct it in the year it’s placed in service, rather than having to depreciate it over several years using Internal Revenue Service (IRS) depreciation tables (Consumer Reports Money Adviser February). The maximum first-year deduction for 2010 was increased to $500,000 from $250,000, and the cap jumped to $2 million from $800,000. Although taxpayers lose the benefit of first-year dollar-for-dollar deductions above the cap, an extension of Section 179 of the tax code provides for a 50% “bonus depreciation” in 2010 to get cash into the hands of small businesses quickly. Bonus depreciation covers new equipment only, and you can depreciate items even if you operated in the red for the year (CNNMoney.com Jan. 17). * Health-care premium tax credits. Companies with 10 or fewer employees earning annual salaries averaging $25,000 or less in 2010 are eligible for the maximum credit of 35% of the premiums paid. The credit is phased out for companies with more than 25 employees with average annual salaries exceeding $50,000. To see if you qualify, complete the IRS “3 Simple Steps” worksheet. * Self-employed insurance deduction. Self-employed taxpayers who pay their own health insurance costs now can reduce their net earnings from self-employment by those health insurance costs (irs.gov January). Previously, you could deduct your insurance costs from business profits, but not from self-employment taxes. * Vehicle depreciation. For passenger autos you use in your business and first placed in service in 2010, your total depreciation deduction increases to $11,060. For a truck or van first placed in service in 2010, the maximum deduction increases to $11,160. However, if you didn’t take any bonus depreciation for those vehicles, your maximum deduction is $3,060 for a passenger automobile and $3,160 for a truck or van. * Alternative minimum tax break. General business credits of eligible small businesses in 2010 are not subject to the alternative minimum tax. According to the IRS, general business credits now can offset both regular income tax and alternative minimum tax. The provision applies to any general business credits determined in the first taxable year beginning after Dec. 31, 2009, as well as to any carryback of credits. For a list of general business credits, see IRS Form 3800.
For more information, read “Prep Your Home-Based Business for Success” in Home & Family Finance Resource Center