Question: How Do Recent Tax Law Changes Affect My Business in 2010 and 2011?
Are you confused and frustrated by all the new laws that have been passed in the last two years? Are you wondering how to comply with all these changes? Are you so confused you don't even know what questions to ask your tax advisor? Here is a simple list of tax changes that will affect your 2010 business tax return and 2011 business tax planning.
Answer:
The information provided in this article is intended to be general information, and not to be tax or legal advice. Each tax situation is different. Be sure to talk with your tax advisor before taking any action based on this information.
Expiring at the end of 2010:
- The Social Security tax exemption(6.2%) for employers ends December 31, 2010. This exemption was an incentive to hire previously unemployed workers, as part of the HIRE Act. If you hired workers during 2010 and think you might be eligible for this exemption, check out this article on the HIRE Act tax credit.
- Businesses with average gross receipts of $50 million or less for the last three years will be able to take general business credits for 2010, even if they are subject to the Alternative Minimum Tax (AMT) for their personal tax return.
- The Section 179 depreciation limit is $500,000 for 2010(with limits on the amount purchased).
- The 50% bonus depreciation provision was extended through 2010. This is a 50% bonus for new property purchased and put in place this year.
- The Making Work Pay tax credit (part of the American Recovery and Reinvestment Act), expires at the end of 2010.
For the 2011 Tax Year
- The 50% bonus depreciation provision was increased to 100% for 2011 only. This means you can fully depreciate eligible business property purchased in 2011.
- Section 179 depreciation provisions have been extended through 2011. These provisions, which were set to expire at the end of 2010, increase the Section 179 depreciation limit to $500,000 (with limits on the amount purchased).
- The Social Security portion of payroll taxes (OASDI) will be reduced from 6.2% to 4.2% for 2011 only. This reduction affects only the employee portion, not the employer portion, which remains at 6.2%. You will need to change your payroll deduction calculations to reflect this reduction.
- The self-employment tax rate will also be reduced for self-employed individuals, by 2%, in 2011 only; the rate will be reduced from 12.4% to 10.4% on net business income.
- For 2010 and 2011: An increase from 50% to 100% on the exclusion from gross income of the capital gains from the sale or exchange of qualified small business stock acquired after March 15, 2010, and before January 1, 2012.
Beginning in 2010 Tax Year, and Continuing
- Employee Cell Phones No Longer Listed Property Employee cell phones are among assets classified by the IRS as listed property. But beginning in 2010, the IRS has taken cell phones off this list. This means you don't have to worry about keeping detailed records of business vs. personal cell phone use for yourself and employees.
- Carry back on business tax credits has been extended to five years. In the past, you could only carry back these tax credits for one year. The provision applies to small businesses (not publicly traded) that have averaged less than $50 million in gross receipts for the last three years. Examples of the tax credits you can carry back include Work Opportunity Credit, Disabled Access Credit, Empowerment Zone Hiring Credit, and the Employer Provided Child Care Credit.
- Self-employed business owners may deduct the cost of health insurance for themselves, spouses, and dependents, for purposes of figuring self-employment taxes. This provision applies to tax years beginning after 2009.
