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New tax deductions will impact many businesses

Posted by Jamie Downey  September 28, 2010 05:13 PM

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On Monday, President Obama signed into law HR 5297, the Small Business Jobs Act of 2010. The law includes a series of temporary tax deductions for businesses of all sizes. The bill also includes provisions, which the government hopes will offset some of the costs of the bill. The following is a summary of certain provisions of this legislation:

Bonus depreciation – The use of bonus depreciation had expired on December 31, 2009. This provision has been extended through the end of 2010. The use of bonus depreciation is not restricted to the size of the business. This is a real benefit for larger businesses as small businesses can use the other tax preference provisions (i.e. Code Section 179).

Section 179 deduction – Businesses that purchase qualifying property may elect to expense these items in the year of purchase. Section 179 provisions for 2010 had been set at $250,000. This has been increased to $500,000 and will be available to taxpayers in both 2010 and 2011.

Qualified small business stock – This provision excludes certain small business stock sales from capital gains tax. My understanding is that this exclusion only qualifies if the entity involved is a C-Corporation. C-Corporations are not typically the entity of choice for many small business, so I am not sure this will have a significant impact.

Health insurance deduction – Premiums paid for health insurance by many small business owners have not been a deduction in determining ones self-employment tax. This is no longer the case in 2010, but will return again in 2011.

Start-up costs – Current rules limit the amount a start-up costs that can be deducted to $5,000. This limit is doubled to $10,000 for 2010. The limit reverts to $5,000 in 2011.

Drawback: Expanded 1099 reporting for landlords - Unfortunately, individuals that receive rental income will now be required to file 1099 forms for certain service providers. This provision continues a trend of additional compliance reporting for businesses. This requirement is permanent and does not expire.

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