Keep More of What Your Business Earns Via New Tax Incentives
New regulations help provide additional tax breaks for many companies this year.
The Small Business Jobs and Credit Act of 2010 and other new tax regulations may entitle you to some savings on your taxes this year. Review the following summary of the latest changes to determine if you are eligible:
Expense and investment
Tax cuts and incentives are available in some spending and investment categories under the Small Business Jobs and Credit Act of 2010:
- Increase in expense deduction. Permits up to $500,000 in capital investments that businesses can expense and increases the investment limit to $2 million for 2010 and 2011.
- Extend bonus depreciation. Provides 50 percent bonus depreciation through 2010, allowing businesses to accelerate the rate at which they can deduct capital expenditures.
- Increase start-up costs deduction. Temporarily increases the amount of start-up expenses that can be deducted for 2010 from $5,000 to $10,000 (with a phase-out threshold of $60,000 in expenses).
- Five-year carryback of general business credits. Allows some businesses to carry back their general business credits to offset five years of taxes. This applies to sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years. Businesses can also use all of their general business credits to offset liability from the Alternative Minimum Tax (AMT) in tax years beginning in 2010.
- Cell phone deduction. Expenses for employer-provided cell phones can now be deducted without burdensome extra documentation.
Healthcare
Effective with the 2010 tax year, businesses with 25 or fewer employees and average wages below $50,000 may receive a tax credit of up to 35 percent of their health premium each year through 2013. Self-employed business owners can deduct the cost of health insurance for themselves and family members as a business expense when they calculate their 2010 self-employment tax.
1099-K Form
Starting with the tax year 2011 (January 1, 2011 to December 31, 2011), income from credit, debit and gift cards and payment processors may need to be disclosed to the IRS. If your business processes 200 or more payments totaling more than $20,000 this year, you should receive a new 1099-K form from your financial institution listing all gross amount transactions in January 2012. Processors may be required to withhold 28 percent of payment card transactions if any tax information is missing or incorrect; so update your company information (legal name, address and tax identification number) with credit card processors and the IRS this year.
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Minimize Tax Preparation Hassles
Tax time can be crunch time for many businesses. Start the information-gathering and dissemination process early to help ease the stress in tax season and to ensure that you have access to all necessary records. For example:
- Provide 1099-MISC forms to recipients by January 31, 2011, for the 2010 tax year.
- Collect and provide your tax preparer with all 2010 documentation as early in the year as you can to ensure that your taxes get the attention they need. Key documents include all revenue and expense information along with complete records for bank transactions.
- Identify deductible expenses. Separate business expenses from any personal expenses. An organized expense-tracking system can help you retrieve information more easily.
- Work with your tax preparer to identify all of the tax incentives that pertain to your business.
Because tax laws can change with little notice, it's wise to visit irs.gov for updates and work with your tax preparer to determine when new regulations apply to your business.