Note: The ARRA (Recovery Act) initiatives and/or programs referenced in this article will expire on September 30, 2010. Any statements about qualifying time periods, or extensions of these dates, as they pertain to the availability of ARRA programs are over-ridden by the expiration of the Act on September 30, 2010.
My last post included information about new tax laws that impact your 2009 business tax return, but the 2010 tax year also brings with it several changes to business tax law.
Tax laws often define and support your small business investment and growth strategies. So, it's important to take stock now, and assess how your business can comply with, and benefit from the changes that apply to the 2010 tax year.
Below is a summary of the major changes in federal income tax law that can impact your business in 2010. While some of these laws are already legislated and in the public domain; more may follow, driven by political and economic factors. This is not a comprehensive list, so be sure to talk to your tax advisor if you have questions about how your small business is affected. You can also refer to several informative online resources including the 2010 Small Business Tax Center on Business.gov or the IRS's Small Business and Self-Employed Tax Center.
To help you plan and manage your tax obligations throughout the year, the IRS has also provides an online Tax Calendar for Small Businesses and the Self-Employed (the print calendar is now sold out).
2010 Tax Law Changes that Impact Small Business
Major changes include:
- Cancellation of Business Debt - This change was first implemented under the American Recovery and Reinvestment Act (ARRA) in 2009 and enables certain businesses to elect to delay recognition of income from the cancellation of business debt in both 2009 and 2010. Income recognition can be deferred until the 5th year after the reacquisition, and then the income is included ratably over the following five years. If you wish to elect this option refer to the guidelines from the IRS here.
- Domestic Production Activities Deduction - In 2010 this deduction increases to nine percent of qualifying business net income. 'Domestic production' applies to a restricted group of businesses including construction, engineering or architectural firms. The IRS has more information on this deduction and eligibility here.
- Updated Mileage Rates - Standard mileage rates for the business use of vehicles has been reduced slightly for 2010. Beginning on Jan. 1, 2010, the standard mileage rate for the use of a car (also vans, pickups or panel trucks) is:
- 50 cents per mile for business miles driven
- 16 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations (no change)
- First-Time Buyers with Home-Based Businesses - If you purchase a first-time home and choose to operate your business from that home you can still qualify for an $8,000 tax credit - if you purchase your home before April 30, 2010. The IRS has more information about eligibility here.
- R&D Tax Credit - This tax credit for research and development was set to expire after 2009, but the House of Representatives has since *voted for its extension, effectively pushing $31.1 billion in expiring tax provisions through 2010. Keep an eye on this one here as it pushes on to the Senate.
- Section 179 Expense Deduction due to be Phased Out - The increases in the Section 179 Expense Deduction, first introduced by President Bush in 2008, phases out completely in 2010. Small business had been able to deduct up to $250,000 of the cost of machinery, equipment, vehicles, furniture and other qualifying property placed in service during 2009. In 2010, this limit is due to drop to $135,000.
- Payroll Tax Changes - The maximum amount of wages subject to Social Security tax will remain the same as 2009 at $106,800. As in prior years, there is no limit to wages subject to the Medicare Tax; therefore, all covered wages are still subject to the 1.45% tax. The FICA tax rate, which is the combined social security tax rate of 6.2% and the Medicare tax rate of 1.45%, remains at 7.65% for 2010. The maximum social security tax that employees and employers will each pay in 2010 is $6,621.60.
These are just some of the changes for tax year 2010 - visit the IRS's Tax Changes for Business site for updates now and throughout the year.
- Get instant access to IRS tax info with the new Business.gov 'Tax Info Gadget'. Add it to your Web site or iGoogle page.
- Managing Your Small Business Taxes - Resources from Business.gov that explain tax obligations that all business owners should work into their regular operations.
- Tax Help and Training for Small Business - Free training and programs (online and in-person) to help small business owners understand their federal and state tax obligations.
*Note: Hyperlink directs reader to non-government Web site.