If you are a small business owner who thought all the best tax breaks were behind you, think again. The recently passed Small Business Jobs Act of 2010 restores some familiar tax perks and adds a few new ones. The law was signed by President Obama on September 27, 2010.
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Depreciation rules
Depreciation rules
The new law extends the first-year 50% bonus depreciation rule that had expired last year, and makes it retroactive to include qualified new equipment purchases made any time in 2010.
Congress also expanded the Section 179 business expensing provision to allow a deduction of up to $500,000 for purchases of new or used equipment in 2010 and 2011. The previous limit was $250,000. What’s more, under the old rule, the deduction was reduced for companies with annual equipment purchases above $800,000. Now the threshold has been raised to $2 million.
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Credit carryback
The Small Business Jobs Act expands the business tax credit carryback limitation from one year to five for private companies with gross receipts of no more than $50 million. And capital gains tax on sales of qualified small business stock will be reduced to zero for original issue stock purchased by the end of 2010. However, you still need to hold the stock for five years to qualify.
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Start-up costs
If you start a new business this year, you might score an added tax perk. The annual start-up cost deduction of $5,000 was raised to $10,000 for 2010. The deduction is reduced dollar-for-dollar for any start-up expenses exceeding $60,000.
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Retirement conversion
Roth IRAs are back in the news. You probably knew that a traditional IRA could be converted into a Roth in 2010 with the resulting taxable income spread equally in 2011 and 2012. Now you can do the same thing with a 401(k), 403(b) or 457(b) plan, if your retirement plan will allow it.
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Cell phones
One very practical and welcome tax change is the removal of cell phones from the “listed property” category, which means you no longer have to meet strict recordkeeping requirements for your business use of a cell phone. Businesses no longer have to include the personal use of a business cell phone in an employee’s income.
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Information reporting
Waiting for the catch to all this good tax news? Here it is. The new law calls for even more information return filing and increased penalties for failing to file such information. Beginning in 2011, rental property owners will be required to report payments of $600 or more made to goods and service providers.
The new small business tax law gives business owners a lot to think about and not much time to act.
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