Doing your taxes stinks, right? No fun at all. But take note as you brace for your 2010 return: A handful of changes in the tax code could translate into a fatter refund check. The Small Business Jobs Act, passed last September, and the historic health care reform law, passed in March, enacted hefty credits and deductions for capital investments and employee health insurance costs.
Here is a rundown of six new credits and deductions likely to affect the most small business owners.
Health care tax credit: Small businesses that pay at least half of their employee’s health coverage can get a significant tax refund.
The maximum credit goes to businesses with 10 or fewer full-time employees with annual wages that average $25,000 or less. The break phases out for firms with 25 employees or that pay average wages above $50,000.
For 2010 through 2013, the tax credit covers up to 35% of the money that a qualifying business spends on its health insurance premiums. In 2014, the top tax credit bumps up to 50%.
Tax-exempt organizations can claim 25% in the first time period and 35% after that.
The credit is available for a maximum of six years: 2010 through 2013 and for any two years after that.
Health insurance deduction for self employed: Are you your own boss and paying for your own health insurance?
Normally, you can deduct your insurance costs from your business profits, but you can’t deduct those costs from your self-employment taxes.
But in 2010, the self-employed can deduct their health insurance costs from their business profits for both taxes.
Let’s say Sally, an architect, makes $50,000 in net income and pays $6,000 for health insurance.
In other tax years, Sally would pay income tax on $44,000 and self employment tax on $50,000. But in 2010, Sally will pay income tax and self employment taxes on $44,000.
Super-charged ‘Section 179′ provision: OK, this one is a little wonky. But it’s worth knowing about.
The extension of “Section 179″ of the tax code allows businesses to write off the full amount of qualifying equipment or computer software made in 2010 or 2011, up to $500,000 per business, per year.
What qualifies? Think tractors, robots and equipment. New and used items are eligible but, sorry, buildings aren’t.
Instead of having to deduct your capital expenditures slowly, the temporary change to Section 179 allows businesses to get more cash up front.
Section 179 is specifically targeted to help small business: A business that spends more than $2 million in one year on qualifying capital will not be able to get the full benefit of the Section 179 write-off.
You can only take advantage of the full Section 179 write-off if your small business booked a profit. A Section 179 write-off can not cause your business to “make or increase a loss” for the year, explained Brosi.
Bonus depreciation extension: For 2010, there is an accelerated depreciation schedule: The point is to get cash into the hands of small businesses quickly. Unlike Section 179, you can depreciate items even if your business is in the red for the year.
Bonus depreciation covers new equipment only, and can be taken in addition to a Section 179 write-off, if the item is eligible for both benefits. You can depreciate “tangible property,” like buildings, machinery, vehicles, furniture, and equipment, as well as “intangible property,” such as patents, copyrights and computer software. (Sorry, if you bought a plot of land, that doesn’t qualify.)
Businesses that bought a qualifying item after Sept. 8 can claim 100% of its cost (so long as it is used before Jan. 1, 2012). Businesses that bought such items before Sept. 8 can claim 50% (so long as it is put into service before Jan. 1, 2013).
Depreciation on a business car or truck: Did you buy a new car, van or truck for your business last year? Ka-ching!
For 2010, business owners who buy and use a brand new passenger vehicle will depreciate much more than usual — $11,060 for a car, and $11,160 for a light duty truck or van. That includes an extra $8,000 bonus depreciation, on top of the usual first-year depreciation. If you buy an SUV or heavy pickup, the rules are slightly different, said Brosi.
General Business Credit: If you are one of those unlucky business owners affected by the Alternative Minimum Tax, you might get a little break in 2010.
Boiled down, if you have to calculate your taxes under both the regular tax structure and under the AMT, you pay Uncle Sam whichever one is more. If your taxes calculated normally are $10,000 and $12,000 under the AMT, you owe $12,000.
Usually, general business credits do not apply toward the AMT calculation. But for 2010, deductions included in the “General Business Credit” part of the tax code are also allowable under the AMT. Applying these credits to your AMT will reduce what you owe under the AMT, explained Brosi.
There are a couple dozen credits in this category: Some that might impact small biz include a benefit for hiring someone unemployed, the costs for starting up an employer pension plan or the costs of employer-provided child care services.
Gustavo A Viera CPA
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